Smart Tax Planning: Setting Aside Money for Taxes

Okay, let's talk about taxes and how we can actually set aside money for taxes upfront. Now, depending on where you live and where what your income was in the last 12 months or even 24 months, there may or may not be an expectation that you're supposed to pay taxes upfront anyway. So we should probably address this now. One of the biggest mistakes that I see, especially on in early on businesses, is that we're going along, we're collecting all this money, we're collecting sales tax, we're not paying tax along the way. We're maybe buying inventory or reusing that money to essentially reinvest in the business. And then we come to the end of the year and we have a big tax bill, one that we weren't necessarily expecting and it may put you in jeopardy from a cash flow standpoint. We want to avoid this at all costs. So here are some options for you. If you are Canadian and you are an individual or a sole proprietorship, they're likely going to be asking you to send quarterly installments at a minimum. Right? Quarterly installments can be hefty. June, September, December and March is when they essentially ask for installment amounts and they do it based on previous years. What I want to do is I want to actually look at what my expected taxes are are going to be. If we go back to having a discussion about having a budget inside your business, we should have an expectation of what our income looks like for the year so that we can budget what our taxes owing are going to be so we get away from it being an individual. Let's talk about being a business in a corporation, if you had previous income in a corporation, they're likely going to request that you pay installments on a monthly basis upfront. Now, if you're paying installments on a monthly basis, that's based on historical figures, maybe not necessarily on what we anticipate your taxes are going to be. We should be looking at what those taxes are going to be. And if you want right. Not all people want to pay the government up front, but if you want, we can start putting this aside up front. Here's what I recommend. So for me personally, I actually make a tax installment weekly on my personal taxes. Why? So that I don't have a bill owing at the end of the year. It also, when I look at cash outflow from my personal account, this drops down to being a smaller amount. It's very manageable on a weekly basis. When I have money that comes into my account, I essentially want to pay the government their share of that before I have any spending come out. That way I make sure that I'm not overspending based on what comes into my account. Same could be for your corporation. We could set it up that it's monthly. We could set it up that it's weekly so that you're paying the government taxes based on what your weekly estimated income is going to be. Again, why would we do that? The cash amount is going to be relatively low. There's going to be more money coming in. But we know whatever's left there at the end of the week is going to be after tax money. This is super beneficial. If we don't want to have that large tax bill at the end of the year that we're not prepared for. By paying upfront and setting tax money aside upfront, we're going to be able to essentially pay that obligation along the way and avoid those large tax bills. So, sorry, we're not avoiding those large tax bills, but we're avoiding the large amount owing because we haven't paid for it or set that money aside upfront. So if you're interested and you're proactive in looking to plan your tax bill out, make sure you start setting aside money upfront on a weekly basis, at least on a monthly basis. Hopefully that's super helpful. If you have any more questions about that, make sure to reach out.