Are you running a small business but aren’t sure how much you should be putting away for taxes? It’s an important question that many owners face. Without the right preparation, you could be hurting by the time April rolls around. To put yourself in the best position to succeed, it’s important to have a game plan in place. Let’s look at how much you should be putting aside as a small business.
Step 1: Determine your tax obligations
We all wish taxes could be a single figure that was easy to calculate. Unfortunately, small businesses may be obligated to pay several different kinds of taxes. To keep everything straight, it’s important to know what you’re in for from the start. Here is a list of taxes you might have to consider:
– Self-employment tax
– Income tax
– Payroll tax
– Sales tax
– Franchise tax
– Property tax
– Excise tax
Ideally, we could provide you exactly the taxes you’ll have to pay, but it’s all dependent upon your operations, the state you’re operating in, and more. Knowing what you’re obligated to cover will make it possible to get ahead of your taxes as a small business.
Step 2: Save roughly a third of your income
The 30% rule is something small businesses and self-employed people around the country use to buffer their savings come tax season. This rule-of-thumb is a conservative estimate of how much you’ll end up having to pay out of your yearly income. Some people even recommend bringing the number up to 40% to remain on the safe side, but it’s all up to you. If you land somewhere within that range, you should have more than enough saved by the time the IRS comes knocking at your door.
Step 3: Implement a method of saving
Depending on the age and style of your small business, you might choose a different method of saving that 30% mark. You might take a third of every payment or simply do it monthly.