Make Quarterly Tax Payments with Ease
Reason #6 for Implementing Profit First in 2024 - Make Quarterly Tax Payments with Ease
Here is a big mindset shift – get ready to get excited to make your next quarterly tax payment!
What?!
When our clients implement Profit First, a vital step in a correct assessment of the financial health of your business is to estimate the tax liability accurately. Once we have that number – we work our way back to how much cash needs to be set aside for those inevitable taxes.
If your business is profitable, you will likely have tax liability due – income taxes, that is. Depending on your jurisdiction (state, county, metro city, etc) – you may owe more than just the IRS Federal income taxes. Nobody loves the moment a tax bill shows up – but if we plan for it from day and dollar one, we can pull from that fund without guilt or sacrifice.
If your business has historically not been as profitable but as a consequence of getting real with yourself and your goals – and implementing Profit First, we need to plan for this eventual reality. Many of our clients become more profitable over time - so planning for this “expense” or liability from the start is the transparent and responsible way to go.
If your business has never had to pay taxes but you are looking at your first bill this year – it is best to set aside a portion of your real cash revenue (cash flow) for this purpose. If you have paid in – owed money on April 15th, you’ll most likely be set up on a quarterly tax payment schedule, based on prior year numbers. This is a great place to start! However, if your business is experiencing rapid growth (and profitability), we have benchmarks to increase this ratio over time so that the estimates are not wildly off, leaving you with an unpleasant surprise next April 15th.
Quarterly tax payments are generally due on these dates:
Q1 due on April 15th, or whenever you file prior year
Q2 due June 15th
Q3 due September 15th
Q4 due January 15th
In the Profit First model, 15% of real revenue is set aside in the Tax account at least twice per month. It is so rewarding to write that check with ease after the balance has accumulated just the right amount!
Wondering how to calculate your quarterly tax payment to avoid a penalty for underpayment?
Here’s what the IRS says: