Business Owner Explains - How I Set Aside Money for Taxes
Hi Friends, Do you struggle to set aside money for taxes? Join me as I walk you through the simple system I use to never fall behind.
Hi, my name is Lucas and welcome! Long before I helped people fix their finances, about the first 9 years I was in business, I’d put off taxes until the last possible minute. Then I’d have a huge bill and because I couldn’t pay it at once, I’d wracked up a ton of late fees and penalties.
To be honest, I’m allergic to administrative work and budgeting - it’s just so boring - so I came up with an easy way to set aside money for taxes that runs in the background with very little effort. Now, let’s get into it… (If you prefer to watch the video, please check it out here…)
Step 1: Separate and simplify
As business owners, we have personal taxes and business taxes to maintain, so when we have several different credit cards and use multiple banks and bank accounts, we’re making life a lot harder than it needs to be. The solution?
Separate and Simplify our business and personal finances. I teach all of my clients to have 1 credit card and checking account for their business and 1 credit card and checking account for their personal life. Everything else is a distraction - so get rid of it
By separating the two, we instantly simplify and organize our finances. All personal expenses are in one place, all business expenses in another. Now, business expenses and deductions are easy to keep track of and we never co-mingle funds.
So how does this help you set aside money for taxes? Let’s move on to step 2…
#2: Designate an account for your taxes and give a nickname
Now that our business and personal finances are separated, we need an easy place to set aside money for taxes. When I opened a business checking account, they gave me a business savings - since the 2 are connected, it seemed like the obvious choice.
Now, when a client pays me, it gets deposited into my business account and then I send a percentage to my new tax account. It takes less than a minute to do.
Personally I use the business savings account but a personal savings account would also work. As a bonus tip, give your tax account a nickname. Why? When a bank account is just a series of numbers, we have no connection to it but when we nickname the account, we give it a personality.
I named my tax account, The Dough I Owe. My savings is the the “Pay Myself 1st” account, and I have “the biz” and my “lifestyle” accounts. Before the nicknames, I would often neglect my taxes and savings but now that each has a “personality”, I actually look forward to contributing to them
Now that we’re organized AND have a place to stockpile money for taxes, we’re are ready for the third and final step.
#3: Pick a percentage & send the amount every time you get paid
Every single time you receive money, whether it’s 50 cents or 50 million, send a portion to your tax account immediately. For example, When I receive a check for $1K, I immediately send $250 to my tax account. $250 to my business, $250 to cover my living expenses and $250 to my savings.
By splitting the money, I have plenty to pay my taxes quarterly PLUS, I grow my savings, business and personal accounts at the same time. This method is a small part of The Big Split Program. If you’re interested, I teach The Big Split in less than a week - kinda like a financial boot camp.
We Start on a Monday and finish by Friday. Over 4 sessions, It’s just you, me and your finances, no communities or group zoom calls. Plus, you’ll receive 6 private check in calls over the 1st year to ensure that you succeed. If you’re interested, click here to set up a complimentary 60 minute call with me and we’ll look at your income, expenses and debts and I’ll help you identify your financial leaks.
Let’s get back to the lesson and figure out how much of a percentage you can transfer to your tax account.
According to the Internal Revenue Service, most small businesses pay between 15 - 25%
I error on the side of caution so I set aside 25% and because I rarely need that much, a surplus begins to grow in the account. So now, I have a safety net for tax “emergencies” built into my tax account
So, what percentage of taxes do you pay? If you’re not sure, ask your accountant or bookkeeper or check last year’s tax return. Once you pick a percentage, get into the habit of transferring that amount, every single time you receive money.
Now, let’s recap the lesson and get you on your way.
Step 1: Separate and simplify your business and personal finances.
Step 2: Set up a Tax account and give it a fun nickname and
Step 3: Pick a percentage and send it to your tax account EVERY single time you get paid.
By putting a simple system and plan in place, you’ll have plenty of money for your quarterly taxes and you can say goodbye to penalties, fees and Massive tax payments. And if you currently owe back taxes and want to learn how to pay them off while keeping up with current taxes, check out this video.
Today’s lesson is a tiny fraction of what I share in the Big Split program so if you’d like to transform your finances in 1 week, click here to schedule a free 60 minute call with me.
Thank you for your time and energy. I’ll see you in the next one.
Lucas Z.