Stop Making Quarterly Tax Deposits

That’s right:  the self employed should forget the quarterly income tax deposit.  Make monthly tax deposits instead.

It’s tax season and too many entrepreneurs are looking at their tax liability for the last year versus the cash on hand to meet the tax debt.  What they see, too often, is a significant shortfall.

The ups and downs of small business are such that sole proprietors have enough trouble managing money on a monthly basis. The quarterly income tax deposit comes at three month intervals so as not to be too burdensome.  But  scheduling a payment every 90 days challenges the business owner to save so that the necessary dollars are there when the quarterlies come due.  And that isn’t easy when you face seasonality, rising prices, slack demand and all the other pressures that come with self employment.

My solution:  deposit the money monthly. Almost every other obligation in your financial life is due and payable monthly:  rent, vendors, utilities.  Why not write a check to the taxing authorities monthly as part of paying the monthly bills? You avoid the “out of sight, out of mind” kind of thinking that allows you to postpone confronting taxes.

Write the check for one third of your quarterly estimate.  Put on the face of the check your tax id number and the current tax year. Mail it off, and you’ve done first things first.

If you are juggling bills in your business, it’s tempting to adopt Scarlett O’Hara’s approach to problems and think about it tomorrow. Bad choice.  The taxing authorities may not call you for payment the way the credit card folks do, but they don’t have to.  If you don’t pay what you owe, they can simply levy your bank account and take the money.  They are a far more fearsome creditor than the folks who call and nag.

Image courtesy of colmmcsky