How to Keep Track of Your Business Taxes
As a small-business owner you’ve got a lot of taxes to pay. Since taxes are one of life’s two certainties, you might as well make it as painless as possible. And the best way to do that is to be prepared. That way, there won't be any surprises.
1. Keep a record of taxes you owe before they’re due.
If you keep your books right, you'll always know what taxes will be due, when they will be due and how much the taxman is due. Quarterly taxes, like payroll taxes and sales tax, should never come as any kind of surprise at all; you should know what you owe on those to the copper penny. (In case you just said “Oh No!” here are the rates for payroll and sales tax.)
2. Separate business and personal funds.
Being the conscientious business owner that you are, you should have been setting aside money for your various tax liabilities, too. Most people do. But most people also let their bill money sit all in one account.
As you run your business you might be tempted to mix and match money set aside for one tax and use it for another tax. Or maybe you’d like to use money earmarked for a certain tax for something else entirely—maybe even something personal, like a shiny SeaDoo—with the intention of replacing the money later. It's easy enough to let happen when your business operates from a single business bank account, as many small businesses do, especially sole proprietorships.
3. Create multiple business bank accounts to manage tax payments and business expenses.
Let’s begin this by assuming you have one account—your business checking account. That’s already better than running everything out of your personal checking account, which is a nightmare at income tax time.
So you’ve got one business account, but what do you pay out of this account? Rent? Utilities? Advertising? Payroll? Everything? Well, no wonder it’s such a mess.
Chefs use a trick called a mise en place—a special setup that keeps all the ingredients they need in a compartmentalized, organized place. Think of your separation of funds as your business’ mise en place. Everything in its right place.
It helps to think of these as your “special” accounts. They exist solely to hold money for bills you always have. And special accounts are easy to manage, because all you do is put money into them (monthly is a good idea) and only take money out once a quarter for your quarterly tax payments, or once a month for your monthly bills.
4. Only take money out of the special accounts to pay the bills.
You’ll never be caught off guard when you know exactly how much you owe. When you’re not dipping into your tax accounts and bill paying accounts, you know exactly what you owe—what’s in the account. You don’t have to check it twice or worry about it. When you look at your “other” bank accounts—the one you use for rainy day expenses, or the other one you use to save up for business growth—you won’t have to worry that those balances may shrink to pay off something else.
5. Hire an accountant.
Learning to do your own books is a great way for a small business to save cash. But if you find the pros are beginning to outweigh the cons, a good accountant can always save you in the long run.
Do you separate your business and personal accounts?
Jacob Harper co-founded the Vintage Vice clothing store and apparel brand in 2006 when he was 23. He sold Vintage Vice in 2009 and now works as a teacher and writer.
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