Ben Franklin said, “In this world nothing can be said to be certain, except death and taxes.”
You aren’t in charge of the first one, but you can take charge of your taxes.
Far too often when contractors come to us for help they are behind paying one or more of their taxes. Don’t let this happen to you.
Continually set aside funds for taxes so they are available when needed. You should have a “taxes due” account set up in your bookkeeping system where the appropriate amount of money is set aside as the taxes are incurred. It takes discipline, but in the long run it is one of the best business habits you can develop. The money goes into the account, and when the taxes are due, you have the money ready to pay.
If you have employees, payroll taxes should be set aside. If you live in a state where your clients pay sales tax on the jobs, the sales tax received on each payment should be set aside. You know the IRS will want a share of your income – look at last year’s tax return, see how big your tax bill was and make sure you are either both setting aside sufficient funds and making estimated tax payments (if needed).
It’s tempting, when the money is there, to borrow it for another bill or perhaps a new toy. Don’t do it. The government agency that you owe the tax to is bigger than you are, they have no limit on how much time they can invest in recovering funds they believe you owe them, and they have a lot more money than you do to argue this issue in court or elsewhere.
We all have to pay our share. With an income tax, be happy you are making an income and pay the taxes with a smile! Yes, you will hear about the person or company who manages to not pay any taxes, but there is always more to the story. Don’t try to “beat the system” – pay what’s asked and get back to running your business.