This may be my last post about taxes. Not because they aren’t important but because mastering business taxes isn’t really that complicated. It’s an experiment of trial and error that every self-employed person must perform. My journey through estimated taxes has been trying, scary, daunting and discouraging but I have come out the other side!
My biggest challenge with estimated tax payments has been needing that money to pay other bills. What I’ve come to realize is that if I don’t have enough to pay taxes and support myself, I’m either not charging enough or my cash flow is insufficient (or both). Since raising my prices and moving away from packages to a pay-as-you-go discount for frequent visits, I’ve been able to stay on top of my estimated payments.
Another challenge I’ve had with my taxes has been stashing the money away for three months at a time and not dipping into it (there’s always a car repair, water heater or cat injury that needs immediate attention). I would use savings that were intended for taxes to pay for the unexpected and promise myself to get my savings account caught up before the quarterly deadline. You can probably guess how that worked out.
Rather than paying my taxes quarterly, I now make electronic payments every month via Direct Pay*. This way, I never have a ridiculous stockpile of cash begging to be spent on emergency expenses. I have become more resourceful in dealing with those while maintaining consistent payments to the IRS.
Each week, I add up my deposits and transfer 10% of the total to my savings account before paying any other business expenses or myself. Your situation may be different but this is a good place to start. Then at the end of the month, I make a payment to the IRS directly from my savings account. I have to pay the bank fee for falling below the minimum balance each month, but since this small fee is tax deductible it’s easy to justify.
I expect one more creative financing adventure this year when I file but know it will be so much more manageable than last year. I wish I had started doing this when I began my business. Being free of the stress of owing taxes lets me focus on serving clients in the practice that I love!
Need help with your taxes? Use this FREE Tax Preparation Documents checklist to get organized! Once you sign up, you’ll get a series of emails with tips to take your taxes from to-do to done.
*If you file jointly, apply estimated payments via Direct Pay to the Social Security Number of the person listed first on your return to avoid any glitches. 🙂