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Is a Tax Account for the Owner’s Benefit?

Is a Tax Account for the Owner’s Benefit?

by | Jan 24, 2023 | Profit First, Better Biz Info, Taxes

Did you know that having separate accounts for Taxes, Owner’s Compensation, and Profit can all work for the benefit of YOU-the small business owner?

In the Profit First cash flow system, you open 5 separate business accounts, these three among them. Then, on a regular schedule (bi-weekly, monthly, etc.), you allocate a certain percentage of your income into each of these accounts. As the balance in these accounts build up, you begin reaping the benefits of being more prepared with an automated cash flow system. And the Owner’s Compensation, Tax, and Profit accounts directly benefit you as the business owner. Here’s how!

Owner’s Compensation Account: this account provides for the owner’s lifestyle and livelihood. It includes take-home pay and any benefits the owner enjoys like health insurance, cell phone, vehicle, etc., even if those benefits are considered business expenses on the tax return.

Profit Account: Profit is the business owner’s reward for running a profitable company. The quarterly bonus that comes from the Profit Account directly to the owner shouldn’t be thought of as just a way to continue to support their lifestyle, but as a bonus for working hard and taking their profit first!

Tax Account: Paying taxes keeps the business owner out of jail! It covers the business owner’s payroll withholding tax and any taxes the owner owes as a result of running a profitable business.

These accounts have different functions and should be kept separate from each other, but they all have the same purpose-serving you as the business owner. Having them reduces the stress of owning and operating your business.

Learn More About Profit First Accounts

As Profit First Professionals, we can help you set up these accounts in your business and learn how to allocate money into them and how much to transfer. Half a million business owners have achieved increased profits, less expenses, and less stress surrounding finances after implementing Profit First in their business. Check out how this business owner was able to pay for taxes and pay off her debts, while still taking a profit using Profit First. 

Schedule Your Free Profit Call Now

6 Tips to Prepare for Taxes

6 Tips to Prepare for Taxes

by | Jan 23, 2022 | Taxes

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. 

 

 

 

 

 

5. KEEP A RECORD OF EVERYTHING
 
We cannot stress this enough: keeping a record of everything makes tax time so much easier. Whether you or your accountant are preparing taxes, you don’t want to be in a position where you need a bunch of different documents from the last year and you have no idea where they are. KEEP A RECORD. Ideally, you should be keeping an organized digital record of everything and making sure it is in a secure place. 
 
6. FIGURE OUT DUE DATES
Knowing the deadlines of your taxes can save you a lot of time, stress, and-you’ll never believe it-money! No one wants to pay even more more in taxes because they missed their deadline, but too many fall prey to not being prepared for due dates. Use the last 5 steps to become better prepared for taxes so you can eliminate that stress from your business! 
 
 
We are Certified Profit First Professionals, masters at helping you implement a cash flow system that helps you prepare for taxes while maximizing profits! We can help you get started on preparing for taxes, cutting expenses, and start growing your profits today. 
Schedule Your Free Profit Call Now
 Download PDF worksheet here.