If this is the question you are facing, or have faced, I challenge you to reevaluate your mindset.
Typically, this question comes because someone is unable to pay the liability due to a lack of funds. And THIS means that your cash flow management system needs an overhaul!
To be clear, you receiving a large tax bill 𝗶𝘀 𝘁𝗵𝗲 𝗺𝗲𝗮𝘀𝘂𝗿𝗶𝗻𝗴 𝘀𝘁𝗶𝗰𝗸 𝗼𝗻 𝘁𝗵𝗲 𝘀𝘂𝗰𝗰𝗲𝘀𝘀 𝗼𝗳 𝘆𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀; while unveiling the flaws of your cash management system. Let me say that again, you getting a large tax bill 𝐈𝐒 the indicator that your business is rockin’ it! If you are not able to pay the taxes on that success, you have been overspending and/or under-saving!
A word of caution! Many business owners get advice to make large purchases to avoid paying Uncle Sam. While 𝑜𝑓𝑡𝑒𝑛 𝑡ℎ𝑖𝑠 𝑚𝑎𝑦 𝑚𝑎𝑘𝑒 𝑠𝑒𝑛𝑠𝑒, 𝑗𝑢𝑠𝑡 𝑎𝑠 𝑜𝑓𝑡𝑒𝑛 𝑖𝑡 𝑑𝑜𝑒𝑠 𝑛𝑜𝑡. Large purchases do not always mean dollar spent = dollar saved; it can look more like dollar spent = quarter saved, and you would have been better served to pay the tax liability; leaving more money in your pocket! Make sure you carefully talk through any purchases with your CPA, and are aware of the recurring expenses it will generate (i.e., if you purchase a new vehicle you now have annual registrations, monthly insurance, repairs & maintenance, fuel….)!
I encourage you to take the time NOW, this week, before any tax planning meeting and identify if there are any purchases that are 𝗰𝗿𝗶𝘁𝗶𝗰𝗮𝗹 to your business operation or would, guarantee to increase your revenue AND bottom line. DO NOT list any would like to haves, strictly MUST haves to move the needle. The rest, table for a future year. If you end up with a tax liability, review these potential purchases with your CPA before deciding.
Of an important note, this scenario is exactly why you NEED a Profit Plan. Work with your bookkeeper or CPA on a cash management plan that includes a Profit Plan! If your bookkeeper or CPA do not offer this service, I would consider a few things:
Find a new provider.
* If you have someone that strictly is data in and data out and isn’t walking you through business planning, I will argue you are being underserved and there is someone out there that will provide those same services while coaching you on the best decisions for your business!
Research! Research! Research!
* One resource I have personally had success with is Profit First. I started by reading the book and was able to implement in my business quickly. The book provides a great starting place for someone who needs a DIY solution until you are able to engage professional help. You are welcome to download the first 2 chapters here: https://springsteadsolutions.ck.page/profitfirstbook. (If you like what you can read, you can find the entire book on Amazon or Audible.)
* I will be launching a digital course to walk you through step by step setting up a Profit Plan in February 2021. If you are interested, get on the notification list here: https://springsteadsolutions.ck.page/digitalcoursesignup
Lastly, with all of the craziness of 2020, don’t leave your tax discussions until the last minute giving you more craziness. Tax laws change each year, you want to make sure you have a clear picture of what to expect and what actions will bring you closer to ensure that you are set up to be Permanently Profitable!. Schedule your meeting with your Tax Preparer tomorrow!
If you are self-employed, an independent contractor, or an entrepreneur, please consider joining!