This simple trick will save you money on taxes...
Taxes, taxes, taxes. It's something we need to talk about. Here's a simple trick that will help you save some money. Many business owners don't realize that they are required to pay their taxes quarterly. If you didn't know this before, well listen up because you're getting penalized each year for not doing it. You could receive a penalty of 1% per month for the amount owed on your estimated tax payment.
Let's say your net income for the quarter was $50,000. That means your estimated payment should be $12,500. ($50k x 25%) If you don't pay quarterly, you will receive a penalty of 1% per month which would be a $375 penalty for just that quarter. ($12,500 x 3%) This can add up really fast by the end of the year and cause you to pay fees that can be easily avoided.
A little trick that we share here at Financial GPS with our clients is to open up a separate bank account that's just for taxes. That means that the only transactions on this account are putting money in for taxes and out to pay them. That's it! Each month, you would transfer 25% of your net income to that tax account so that the money is stored away and not considered profit to be spent.
Every quarter, you would locate the Net Income Number on your Income Statement, take 25% of that number and submit that amount as your estimated tax payment. If 25% is too high, then do 20%. The point is to send something to the IRS. And this is just going to eliminate a lot of surprises at the end of the year and keep you ahead of the game. If you submit a payment for the first three quarters, then when you go to do your taxes at the end of the year, you won't owe a huge tax bill all at once because you spent the entire year paying the bill.
And that's it! That little trick can save you money on taxes. Make sure to check out our blog, 5 Things You Must Do to Prepare for Taxes for more tips and tricks!
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Until next time.... Ciao!