The Freelancer's Complete Pricing & Tax Reserve Formula
How to calculate your minimum viable hourly rate, build a 25% tax reserve, and transition from hourly billing to value-based retainers.
Step 1: Calculate Your True Billable Utilization Rate
Most solo freelancers spend 25% to 35% of their workweek on non-billable tasks: client proposals, bookkeeping, invoicing, marketing, and scope management. Out of a 40-hour week, realistic billable capacity is 28 to 32 hours.
Step 2: The 25%–30% Quarterly Tax Reserve Rule
Because no employer withholds income or FICA taxes from 1099/freelance invoices, transferring 25% to 30% of every net payment into a dedicated high-yield tax savings account protects you from quarterly IRS/tax penalties.