As we move into May, many owners are glad. April can be a difficult month for business owners financially. Many business owners have large tax bills to the IRS and the states they do business with. In addition, there are often many state and local taxes and registrations…each with its own fees. Making payment after payment can be emotionally draining… not to mention the drain on your checking account! Often, sales in the first quarter are lower than in other quarters which has left your cash reserve lower as well. What can you, as a business owner, do to lessen the blow next year?
Change Your Preparation
Throughout the year, begin setting aside money - in a separate bank account - to pay estimates and taxes due. We also recommend that to lessen the burden in April, you evaluate your estimated payments at least mid-year and see if it would be better to increase the quarterly amount, especially if your net income is increasing over last year. Also, talk to your tax CPA to do some planning so you can take advantage of any benefits. But be careful, don’t spend money just to save on taxes. You never recoup the full amount spent!
Change the Timing
Get your taxes done earlier. This lessens the last minute surprise element and may also give you time to make sure you’ve taken advantage of all the tax deductions and benefits that you're entitled to. You can also pay some of your local taxes a week or two earlier. This doesn’t change what you owe but can feel better emotionally to not have quite so much money going out at once.
Change Your Mindset
No one likes to pay taxes. But let’s look at the alternatives.
What if you didn’t make enough to pay taxes. Remember, only a percentage of what you make goes to taxes. The rest goes to the business and/or owners. If you don’t owe taxes, it may mean that you’re not getting paid or your business is struggling.
What if no taxes were collected? No one agrees 100% where the governments are spending their tax dollars. But what if there were NO taxes? What would life be like? Use your frustration with paying taxes to start influencing where those tax dollars are spent. Begin with the local level - become involved and find out where the money is going. See how you can impact the usefulness of those dollars. These are the dollars that can benefit you most.
Much of our spending has a huge emotional component and can affect us in ways we don’t think about. Changing our mindset and adjusting our habits can help not only the account balance but our mental balance.
Need help figuring out your cash flow and how to set aside for next year?
Want some accountability to keep you setting aside money for future needs?
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