I can’t tell you how many times I’ve seen this happen. I meet with a new business owner and they tell me how well business is going and how much money they’re making.
I’m excited for them, but it often seems when tax season rolls around, they don’t have any money left to pay their taxes. If this has happened to you, you are not alone.
There are three simple steps to make sure you are ready and able to pay your taxes when they’re due.
First, work with your CPA to determine the right amount to pay every quarter. Underpaying can lead to penalties and interest, so a close relationship with your CPA is important.
If your income fluctuates throughout the year—a dramatic increase, or a dramatic decrease—it’s worth checking in with your CPA, just to make sure you don’t need to adjust your quarterly estimate.
It’s easier to make an adjustment on a quarterly estimate than it is to be surprised on April 15th, when the tax bill comes due.
Second, it is important to know the due date of quarterly tax payments. Unfortunately, the name quarterly is a terrible name.
There are four payments due each year, but they aren’t due on a regular quarterly schedule. The schedule for making your quarterly payments to the IRS is April 15th, June 15th, September 15th, and January 15th.
As you can see, there’s no rhyme or reason to which month is picked. I couldn’t tell you why they picked the 15th of each month, either. My only response is it’s the US government, and we know how efficient they are at doing most things.
Third, open a savings account to make regular deposits for your tax payments. I do monthly deposits when I take draws from the business. This is not an account for you to access, except for taxes.
You need to realize this isn’t your money. This is money that’s to be sent to the IRS. By setting it aside on a regular basis, you’ve placed it out of sight and out of mind, which makes it easier to save. It is a place to go pull the money from when it’s time to make your tax payments.
These three simple steps will have you ready and able to make your payments and make them on‑time. You won’t have as many surprises, and if you are like me, it will make the whole experience more peaceful.
If you would like to have a conversation about this or any other business issues you are facing, give us a call at (985) 727-0770 or email [email protected]. We’ve walked many other business owners through similar situations, and we’re here to help.