With TaxDayâ„¢ in the U.S. rapidly approaching, thought I’d share a small tip for anyone who recently went out on their own to freelance or start a business, or is thinking about doing so. This won’t apply to everyone. And it may not even be appropriate to those that already are on their own. I’m not an accountant, nor a tax professional. It’s just a common-sense change I made recently that helps keep a little extra order and separation to Stopdesign’s finances come estimated tax time each quarter.
After three and a half years of running my own business full-time, I’ve learned a few lessons the hard way. One of the lessons I’ve learned concerns money. Specifically, business revenue: where it’s kept, how it’s accounted for, and what other funds it’s mixed with. I won’t go into details. Let’s just say going on an installment plan with the IRS isn’t as much fun as a trip to Disneyland.
Since I keep the books and do my own accounting, I’ve benefited from having several separate bank accounts. And I’m not just talking about one for personal and one for business.
Anyone running a sole proprietor business under a DBA usually has a business checking account that’s separate from their personal account. This past year, I added another account to the mix, in addition to a standard business checking account. This one exists solely to keep Stopdesign’s tax savings separated from any other funds. A certain percentage of revenue is transferred directly into this account immediately upon receiving any payment. The account is only used for paying taxes Stopdesign owes, nothing else.
Even though I use financial software to keep the books and track accounts, I’ve found having this extra interest-bearing account is helpful. I always know exactly how much I owe the IRS. And I’ll always have enough to pay Uncle Sam when tax time comes around. Your mileage may vary.
Make sure you’re not getting dinged with monthly service fees. It should also be paying you interest. The more, the better. But it’s obviously best to stay away from stocks and other high-risk investments if it’s money you owe the IRS.