We are almost in the middle of 2021 and here in the US, Biden has just announced his tax package.
That got me thinking…
Especially now, with the deadline extension this year and all these ideas with tax are going on right now. I wanted to share with you some of the frustrations we have experienced and heard.
Frustrated with filing your taxes?
One of the things that commonly comes up is you are frustrated with filing your taxes. I get it, the IRS sucks! That’s a pretty normal feeling, no matter what tax bracket you fall under.
It is common for each President to implement their own tax package and unfortunately, as citizens we don’t have a lot of control over what they implement and that can be frustrating. What you can do is take control over what you can do based on what is going on, or what the change is.
It is important to communicate with a tax professional so they can better explain how these changes may affect you.
For example, Biden wants to increase the capital gains tax rate to people making over a million dollars to the highest tax bracket. What is going to happen if that passes is that people are just going to hold on to their stuff and stop selling it to wait out the capital gains tax increase.
So, how do you manage cash flow when you absolutely don’t have control over things?
With the Profit First system, we recommend you set aside a bank account specifically for the purpose of managing your income tax burden. For things like sales tax or payroll tax, we look at those as operating expenses.
We want your business to have a separate tax account because when you take money home from the business, we want you to be able to live off 100% of that money. We don’t want you to have to take that money and then have to use a portion of that for your income tax burden. The business is what is creating this income tax burden so it should be the one paying for that.
Don’t forget to set up rhythm days…
So, make sure you set up an account for it, sit down twice a month, take a small percentage of your revenue, and put it into the tax account. Depending on your tax rate, we have customers that set aside anywhere from 2% to 15% of their revenue. By doing it that way, you don’t feel the burden that is going to happen if you don’t do this. Without boundaries around that cash, we are going to end up spending it. If we put aside a little throughout the year then we will have more than enough to pay the income tax when it comes due.
Have good healthy tax strategies
Additionally, as tax rules change, make sure you have good healthy tax strategies in place so that you minimize that tax burden.
That can be as simple as making sure you have the right entity in place, are you an LLC or an SCorp? All of these things affect how much you pay in taxes. Are you taking advantage of tax resources such as corporate rent?
We have more information about this on our website and in previous videos. Are you writing off everything you possibly can? We want to help minimize that tax burden to help make tax season less frustrating for you.
Click below to watch my full video on the topic.
We will be offering a lot of advice on our page here, but we also would be happy to help you out on a more personal level. Feel free to hit us up if you need help preparing your taxes.
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More of a blog person?… THAT’S OK! We keep our INCITE TAX BLOG full of all of the same amazing content that you would find on our YouTube Channel, including John’s special guest interviews, such as the one with the founder of the Profit First System, Mike Michalowicz!
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