It happens to a lot of people but certainly not to everybody.
As a rule of thumb in the first two years you simply want to reserve 50% of your gross until you get a better handle on what your deductibles are and what it is that you exactly owe and then you can slowly home in on the correct amount to reserve. Too many variables to get closer but 50% should cover all but the most extreme cases.
Simply open a savings account and park that 50% there right after you invoice. If you're invoicing with GST/VAT/whatever it is called where you live then you get to subtract out the VAT first, then do the 50%, then add all the VAT back in and save that.
That's a good rule of thumb, but a better rule is probably to just get an accountant on day one. For 1099 consulting businesses, doing your own taxes is probably a false economy.
I think a lot of people assume they can put off getting an accountant until they're sure the business is serious. Which is probably why so many of the stories I've heard (and, to add to that, my own story) are about the tax screwup consequences of those first couple gigs you do before you formalize the company.
Sure you should get an accountant. But you should still reserve that much money.
Getting an accountant is your first major purchase as a new business owner.
And getting a good one is not all that easy. I lucked out, the one I ended up with (after trying two others) was a CFO of a large company that decided he had enough of the pressure and joined his wife's fledgling accounting company.
So instead of just having an accountant I ended up with a mentor to boot, all for the price of one.
It happens to a lot of people but certainly not to everybody.
As a rule of thumb in the first two years you simply want to reserve 50% of your gross until you get a better handle on what your deductibles are and what it is that you exactly owe and then you can slowly home in on the correct amount to reserve. Too many variables to get closer but 50% should cover all but the most extreme cases.
Simply open a savings account and park that 50% there right after you invoice. If you're invoicing with GST/VAT/whatever it is called where you live then you get to subtract out the VAT first, then do the 50%, then add all the VAT back in and save that.