Being self-employed can provide for a beautiful life, giving you with many opportunities and freedoms that you would be hard-pressed to find in a regular job. Along with these freedoms, there are specific responsibilities. I believe that the most important of these is to follow this one rule: Pay Uncle Sam first.
Self Employment Financial Advice – Pay Uncle Sam First
Create a Landing Account
When it comes to being self-employed, I go against a piece of advice that I held dear for most of my life. That is, pay Uncle Sam first instead of yourself. I used to say that you should always pay yourself first. But when it comes to taxes, the money can’t be counted until that dealing is done.
Make it a set rule, that the money isn’t yours until the taxes are paid. Doing this will keep you out of trouble. The best advice I have found for a sole proprietor is to use a separate bank account for all incoming money. Filter everything through this account.
Separate the Money Before You Claim It
When you pull money out of the filter account, separate it into yours and theirs. Yours is your company’s regular business bank account. Theirs is a savings account or other form of savings that will pay interest.
Each time, pay the tax percentage into that account (but keep it realistic – you don’t want a large tax refund.) Every quarter, pull from the tax account (theirs) and send in your quarterly payment. It’s that simple. Now work to keep it that way.
Trouble starts in one of two ways. One, you get clever and decide to maximize the profit from the tax money before you send it in every quarter. Doing this has caused the downfall of many businesses, and in the end proved that it just wasn’t all that smart to be clever.
The other way to get in trouble with taxes is to borrow from the money in the tax account before the quarterly is due. Sure, you have the best intentions in the world, but this is a bad idea.
If something else happens along the way, you will soon find yourself on the losing end of a huge tax debt. You don’t want this, trust me.
You Will Survive Credit Dings
If you find yourself in a hard spot, channel your energy into increasing the business income. It might be that you need to take on new business or new types of business. If things get bad, but you believe in your business, consider a job to augment the income until you can get it built back up.
If your credit takes a hit, learn to live with it. It is unfortunate, of course, but this is still better than owing money to the IRS. There are bad credit loans that may help you out of a tight spot, but be careful not to over-extend yourself for short-term solutions.
Do what you need to make ends meet, but, and I think you know where I am leading, don’t take money out of the tax account.
Consider It Stealing
One way to protect the tax account from sudden money needs is to consider that money the federal government’s. For you to pull money out of that account, it would be like stealing. In fact, let me go on the record and state that it is stealing – stealing from your future.
That’s right; if you pull money from the tax account, you are stealing from yourself. And if you find yourself needing that money, the last thing you need is somebody taking from you. Give yourself a break and look away from the temptation.
I know that I sound practically dreadful and almost threatening in this article when I talk about Uncle Sam’s money. But if you think I sound bad, just wait until you have to talk to them.
Okay, they aren’t that bad, but it would be best to treat them like a business partner instead of the world’s worst loan shark. Because, as you should know, the IRS will get their money. Just pay Uncle Sam first, and everything will be fine.