Archive for February 2017

Tax planning: based on gross sales or net revenue?

Your business’ gross sales and net revenue figures are both important pieces of the income tax puzzle. You’ll report both numbers on your business tax return, but you’ll also factor in other items that will affect the final amount you’re taxed. Depending on your business structure, taxes are either assessed to the company or to its owners.

Whether taxes are assessed to your company or you specifically, that can be a lot of information to keep track of (and track down once tax season rolls around).

I rarely come across a business owner who knows their net revenue to date. It’s difficult to keep track of sales minus business expenses, depreciation, the cost of goods sold, and other factors.

However, if you ask any business owner how much they’ve made that year, they’ll usually have a good idea off the top of their head.

If you’re practicing the “tax bucket” savings plan I recommended recently, you’ll need to know how much to deposit into your savings account each month. I work with my clients to determine what percentage of their gross sales to deposit into their tax bucket.

For example, if a company has $30k a month in gross sales and we’ve estimated their tax liability, we can then calculate a percentage of their gross sales to be set aside for taxes. In this example, the company’s income tax liability is 3% of $30k, or $900 a month. If sales fluctuate, so does the deposit. When sales are down, they need to deposit 3% of $20k, or $600 a month.

It’s a simple way to approximate your tax liability. The IRS won’t let you use an estimate, but I find it’s helpful for the business owners I work with!

Want to talk with a professional to make sure all aspects of your tax needs are squared away? Let’s have a conversation.

Big tax bill? Try a tax bucket

What happens when paying the balance due after filing taxes seems like an impossible feat? It can be a tough pill to swallow.

With the right preparation, though, you can set yourself up right for next year’s filing!

Some business owners find that they have to beg, borrow, and steal to pay the tax man on time. But that can be avoided with some simple planning!

I recommend creating a “tax bucket” savings account that will do nothing but store all of your tax money until it’s time to send it to the IRS. The name of that account should literally say “Tax Account” or something very similar, so you’ll remember to never touch it—unless it’s time to pay the IRS.

First, you’ll need to work with your tax planner to determine your estimated tax liability for the current year. Then you’ll break down that big number into bite-sized pieces. Depending on whether you want to make daily, weekly, monthly, or quarterly deposits into the account, you’ll estimate the recurring amount and frequency you’ll need to deposit.

In addition, the “tax bucket” savings account has the added benefit of accruing interest. You could actually make money while saving it for the IRS!

If this year’s tax-filing deadline will be a “pay” day for you and you can’t pay your tax bill, make sure you do file your return on time. This way, you’ll avoid the IRS’ failure-to-file penalty of 5% per month (up to a maximum of 25%) of your balance due. You’ll still face a penalty each month your bill is outstanding, but it’s only 0.5% of the amount you owe.

Read to start making estimated payments into your “tax bucket,” but not sure how much to deposit? Call us today to schedule a consultation on tax liability for your business.