Do You Have Enough Money Set Aside to Pay Your Taxes?
Individuals starting out a new business often find themselves asking one question: How much money do I set aside for my business taxes? For those who have spent a few years in developing their business, you have a good feel about how much money you should set aside to pay for expenses and taxes at the same time. Once you are able to make estimated tax payments, you will be in a better position to put away necessary funds to pay for business taxes. But what do you do before that? Here are some tips to consider when setting aside a certain amount of money to pay your business taxes.
How Much to Save From Your Very First Payment
It’s normal for people who run their own business to become overly-excited when they receive their very first payment. The instant impulse that you might have on receiving this payment is to make reckless expenses. However, it is in your best interest to refrain from such activities when you receive your first payment and to save at least 20% of your profit so that you can pay off your business taxes. Many individuals run out of businesses only because they were unable to manage their finances productively.
Why is Setting Aside Too Much Never Enough?
No business incurs profits the moment it is set up. There are several ups and downs that a business will experience on its way to success, which is why you should start setting aside a certain amount from the very beginning so that you are in the practice of doing so for the many years to come. Limited Companies currently pay corporation tax at 20% of profits. What you have to take account of is the fact that there may be personal tax and also VAT payable.
Does Experiencing a Loss in the First Year Mean I Can Spend My Tax Money That I Set Aside?
Absolutely not! You will have to add that saved amount to the next year so that you will be able to pay taxes then. If all this sounds too technical and difficult, then it is always best to seek professional assistance regarding how much money you should exactly set aside to pay your taxes. In order to avoid any legal action from IRS and prevent yourself from running out of business, it is always best to ask a lawyer or accountant who is aware of such issues. Too often, people that own small businesses experience tax trouble due to reckless expenditure. As they try to scrape their way to success, they are slapped back with a tax bill. Success is sweet, but there is a hefty price for it.
How can you ensure you have set enough aside?
Working with a great accountant along with modern bookkeeping software really helps! So long as you are up to date with your bookkeeping, your accountant will be able to advise on what money the company needs to keep aside for taxes. Also what money you personally have to keep aside for personal tax.