Big tax bill? Try a tax bucket
February 10, 2017
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.
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