Never Caught Short at Tax Time!
This tip will really help you lower your stress levels and avoid being caught short of cash when it is time to pay the taxman (either for GST or income tax).
Remember having a piggy bank as a kid? Wasn’t it amazing how the money really added up when you kept putting in your spare change or maybe part of your allowance and didn’t take anything out until you had enough money to pay for what you were saving up for?
This tip uses the same strategy that you successfully used when you were young to help your business at tax time.
First, have at least two bank accounts for your business – one you use for the day-to-day operations of your business, the other for your tax obligations – this one will be your piggy bank.
For your tax piggy bank you want one that has low fees (or maybe fees per transaction) and high interest. It is better if you cannot get ‘instant’ access to the money – especially if you have a tendency to dip into your savings (did you do that as a kid?).
Alternatively, if you don’t want you money just ‘sitting there’ you could put the money into an offset account for your business loan or mortgage. The choice is yours, but remember – don’t make it so easy to get to that you are tempted to dip into it!
How to make this work for you:
- When you reconcile your business performance at the end of each month, make sure you also calculate the amount of tax you need to pay, both for GST and income tax.
- Transfer this money to your Tax Piggy Bank.
- Don’t withdraw any money during the year unless it is to pay the Taxman.
When in it comes to tax time, the money in your Tax Piggy Bank will cover your GST and tax obligations without you having to scramble and scrape to find the cash. As an added bonus, you will have accumulated some nice compounding interest from your savings over the year, especially if you put the money into an offset account against your higher interest mortgage or business loan accounts.
Lastly, you can use the same strategy to put aside money each month for your superannuation savings before you deposit into your super accounts.
Successful Business Life
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