How to go About Setting Aside Money for Taxes

As a Wealth Coach, it might surprise you that I hate taxes, just like everyone else.  I work hard for my money and I don’t like giving it to the IRS or to the State. But, it’s a part of working life. Here’s the thing though, as much as we hate giving money to the taxman, if our business owes money it means our business is making money and when you look at it that way, it’s actually a good thing that we have to pay them.  This is what I like to call a necessary evil – if we want a profitable business, we have to be prepared to pay the taxman. 

So, what can you do to make tax time less awful? Well, it’s simple! Based on the state you live in, the IRS usually taxes you somewhere between 5-7% on average based on your NET income, so I recommend setting aside money each month to save for tax time, instead of scrambling to find it all at the end of the year.  How often you set aside money may depend on how often you have money coming in, but in general, I suggest somewhere between every 2 weeks and once a month. 

How much should you set aside? I always suggest starting with a minimum of 10% right off the top of your gross profit. Before you do anything, including paying yourself, take 10% of your gross profit and set it aside into a savings account and do NOT, I repeat: DO NOT TOUCH IT! 

I know I said that you’re taxed on your net profit, so you might be wondering why I’m telling you to take it off of your gross profit. Well, I always think it’s better to be safe than sorry. Realistically, the worst-case scenario is you set aside too much money and just gave yourself a little bonus! Think of it as a pat on your back for all your hard work saving! 

This tip has worked for me and it works for my clients when it comes to taking the stress out of tax time. The feedback that I get is that my clients feel empowered by having the money saved in an account. They’re not scrambling to find it or struggling to come up with it, they simply write a check and pay what they owe. It’s a tried and tested tip amongst many entrepreneurs. And, that’s just one way you can turn your money sassy and sexy! 

In this YouTube video, I go into more detail as to how and why you should be setting money aside for tax time.