How Can I Save for Taxes?

Save for taxes

You had your business taxes prepared and you learned that you owe business taxes. You feel stressed about paying your taxes on time but know that you will find a way to pay them one way or another. One thing you know for sure is that you do not want to feel this way next year when your taxes are due. 

Paying taxes is a natural byproduct of running a profitable business. Managing how to save for your taxes is a wise move for successful business owners. What is the best way to get started with saving for taxes? How can you develop a tax savings plan? Will a tax savings plan actually work? We will answer these three questions in this article.

Open a separate bank account for your tax savings

Many businesses have at least one checking and one savings account. We have found that opening a separate bank account for your tax savings is the best way to get started.

Having a separate account works in setting aside the funds specifically for taxes. We have found that having a dedicated savings account helps you not to think of your tax savings as part of your available cash reserves. 

Develop a tax savings plan

You generate revenue and make deposits throughout the year. So it makes sense to save for your taxes throughout the year as well. That way you will have the funds available when they are due.

An approach that has worked very well for our business and for many of our clients is to transfer a percentage of each deposit into a separate tax savings account.

Let’s say that you have determined that saving 15% of your gross receipts is sufficient for your estimated taxes. This is how you would apply this approach:

  • If you deposit $10,000 into your business checking account
  • You would immediately transfer $1,500 (15%) to your tax savings account

Continue this pattern no matter how small or large your deposits are. You can simplify the process by doing the transfers based on deposits received on a weekly or semi-monthly basis. 

Will a tax savings plan work?

The beauty of this method is that the transferred amounts will automatically adjust to the natural rhythm of your business. The key to success is being methodical and consistent. 

As your business grows and your profit increases, your taxes may increase. Speak with your tax professional about your projected taxes. We have clients doing this annually at a minimum. Adjust your savings percentage based on the projections.

I know from personal experience that having a plan to save for taxes works. Both my husband and I own businesses. In the past, we always were able to come up with the money for our taxes but tax time was stressful.

We implemented a tax savings plan almost ten years ago. Now there is no stress or drama at tax time. Every year around tax filing time, my husband tells me how thankful he is that we follow a tax savings plan. It made a huge difference in our lives.

You too can be successful in saving for taxes! Would you like help along the way? In conjunction with our ongoing services, we offer advisory services for, cash flow projections and strategy sessions. Learn more about how Beyond can be there for your continued and ongoing success!