Imagine this: it’s the middle of the fiscal year and your business has already grown exponentially.
First, congrats! You’re killing it!
Second, what are you planning to do with your additional income? Invest back into your business? Create a rainy day fund? Pay yourself a bonus so you can finally book that vacay to Tahiti?
All of these are wonderful options. But before you go on a spending spree, don’t forget that a higher income has an unfortunate downside – a higher tax bill.
So how do you stay on track with your quarterly payments when you’re making bank? Let’s discuss!
Your Estimated Tax Payments Can Change
If you’re making more money, your estimated quarterly payment plan established at the start of the year may no longer apply. And if you don’t modify your tax payments to Uncle Sam, you could inadvertently pay too little, potentially leading to a tax penalty.
This is a great example of why it’s so important to frequently review your business finances. Things can change quickly! You don’t want to get yourself into financial trouble with something that’s completely in your control.
How TSJ Handles Quarterly Payments
Clients constantly ask me how to make their quarterly payments. Here’s my tried-and-true method that takes less than 10 minutes a month:
- At the start of the new month, total your gross earnings before any expenses from the prior month.
- Calculate 20% of your gross earnings.
- Of your calculated total, 15% goes to the IRS and 5% goes to your state. Every month. Register for an online account with the IRS and your state tax agency to make and track your payments online.
When you get into the habit of making monthly payments, the estimates become part of your regular monthly budget.
It’s also psychologically easier to part with $500 each month than $1,500 every three months!
Don’t Make More Work for Yourself
As a business owner, you manage a zillion moving parts on a day-to-day basis. Keeping up with your fluctuating tax payments doesn’t have to be one.
Although my method above for calculating quarterly payments is fast and easy, some people simply don’t have the time or desire to handle their taxes. That’s where Tax Savvy Jessica comes in.
All of our packages include at least one annual review where we calculate your estimated tax liability.
Contact us today to discuss what tax plan works best for you!