We asked thousands of business owners about the number one most frustrating part of business finances, and guess what it was? TAXES. If you are feeling the stress of preparing for tax time in your business, check out these 6 tips to help you prepare better for taxes.
With these proven strategies, you will be better prepared to pay your taxes, and we can help you reduce your tax liabilities even further.
1. OPEN A SEPARATE TAX ACCOUNT
The best way to prepare for taxes is to start setting aside money for them right now. Open a separate bank account specifically for taxes, and start allocating a certain percentage of your income into it on a regular schedule (we recommend every two weeks). You can calculate the percentage your business should allocate, but we recommend 15% (Learn why we use 15% and how we help you do this with the Profit First system).
If you’re worried about your bank not allowing you to open multiple accounts, we can help.
2. SAVE MORE FOR TAXES THAN YOU THINK YOU’LL NEED
It is always better to be over-prepared than underprepared. Saving a high-percentage for taxes ensures that you will have enough to pay them when the time comes, and may even be able to pay yourself back a bonus if you end up having a surplus!
Behaviorally, it feels a lot better to pay taxes directly from the business and sometimes even be rewarded monetarily for your preparedness. We’ve even had a client who did this and had 3 times as much saved for taxes as she needed, and she was able to reward herself-all while running a profitable business throughout the year. Check out her experience here.
3. KEEP YOUR BUSINESS AND PERSONAL ACCOUNTS SEPARATE
Keeping your business and personal accounts separate is good advice in general, but especially when it comes to preparing for taxes. Separate business accounts help you better estimate taxes, pay the correct amount, and keeps your finances more organized and accurate. It also prevents you from stealing from your personal money to pay for business expenses!
4. DON’T RUN UP EXPENSES TO CUT TAXES
This is one of the most damaging money myths out there. Many business owners have been told that you need to “spend money to make money”. While of course this is true from the standpoint of some business aspects, it is illogical when it comes to taxes. Running up expenses to reduce taxes is the same as spending $10 to save $3. It is very damaging to business.
The goal is to run the business as profitably as possible (that is the only way to achieve financial freedom) by creatively and carefully cutting down your expenses so that you can make more money while spending less.
