Small Business and Tax Responsibilities

Make no mistake, in business everyone has their own tax responsibilities they must be aware of. It certainly pays to always get your own tax advice and input from professional sources. Good accountants cost money but they can also save you greater amounts through good tax advice.

But with that said, when it comes to running your own business we are all responsible for making sure we meet our tax demands. If our business earns enough to put us into a position where we need to pay tax, we need to ensure we have the money set aside to do so.

This is where some small business owners come unstuck. For example your business may earn enough in a year to warrant getting a 500 tax bill at the end of the business year. Now if you don't work this out as you go along and put that money aside, you will probably still be able to find it, as it is a relatively small amount of money for many small business owners.

But supposing your business does really well and ends up with a tax bill of 25,000? To get a tax bill for this amount you really have to be earning a decent amount of money. You now have to find a large chunk of cash in one hit when it is time to pay the tax. Would you be able to find that cash?

The easiest way to do it is to get into good habits right from the very start. It isn't necessary to know exactly how much tax you will have to pay if you set a plan in motion from the beginning. A good way to go is to put aside roughly 10% of every single payment you receive as income. Set up a separate business savings accounts to put this into if you can; it is far easier to keep the money set aside rather than merely thinking of it in that way but keeping it with the rest of your cash flow.

Ten per cent might not be enough to cover all your outgoings in terms of both tax but it will certainly cover a good percentage of it. The good news is that when your tax bill comes in you will have a large percentage put away. If you still have some funds remaining in your savings account after paying the tax bill, you can either save the remainder for the next tax payment, or take the extra money out and reinvest it in the business, or pay yourself a bonus and buy a special treat. For example you might use it to treat yourself to a holiday.

The point is that by allocating a set percentage like this to tax, you should be able to cover everything without fear of coming up short. So even if you have a bumper business year and you end up with a large tax bill, you will have some in reserve to meet it. And that is far better than panicking and wondering where the money will come from.

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