The first of the year is often filled with high hopes and new plans for the small business owners we work with. They vow that their shiny new day-planner or new organization app will keep them on track, hitting every business deadline. And then here comes the March 15 tax bill — oops, forgot to schedule that! — which happens to be due Monday, March 16 this year.
Are you ready to meet that obligation? Is it more than you expected it to be? And do you know where they money will come from?
How to Pay Your March Tax Bill
Unless you’re a newbie business owner, you’ve been through this drill before and know you have a couple of options for paying your March tax bill.
You can either pay it from your business’ checking account or borrow the money from somewhere. That’s not ideal, but “shift” (moving money around) happens.
Depending on your bank account balance, this could be an easy bill to take care of or one that straps you and forces you to do belt-tightening way past the end of March.
Benefits of a Separate Tax Savings Account
A great way to make sure you have money to pay your next tax bill is to adopt Profit First principles where you create a separate bank account for future tax payments. When a portion of the money you make is regularly moved out of your business bank account and into the tax account, you’re less likely to spend it. It’s the out of sight, out of mind trick that works in other areas of your life; for example, saving money for retirement.
Typically, the money you put away for tax savings is about 15% of your real gross revenue minus materials and subcontractors. But how do you know if 15% is enough? Check with your accountant to make sure it’s neither too high nor too low so you can adequately fund the separate tax payments account.
Can’t Save Big? Start Small
If you’re not used to putting aside 15% for taxes, you’re not alone. (Remember, we’re bookkeepers.) Trying to save an unrealistic amount can stress your business’ finances. So start small and put away 5% so you won’t have to scramble to find as much money the next time taxes are due.
While the IRS does expect a timely and complete tax payment from you, it offers several options to ease the burden, including (in some instances) making smaller monthly payments, filing for an extension or declaring a financial hardship.
Call Your Profit First Coach
A tax savings account is just one of the five recommended bank accounts every business owner should have. You’ll also benefit by having an account for profit, owner’s pay/payroll, operating expenses and an income account.
If you’re curious about the Profit First approach and how it can work for your business — and help you manage your tax bills more effectively — spend 30 minutes on the phone with one of us. The call is free and we’ll fill you in on Profit First and the money-management magic of five separate business bank accounts.