If you use Profit First and have money left in your tax account after filing, you can only spend what was there on 12/31 and exceeds your actual tax bill. Keep the rest for next year's taxes. That surplus is yours to take as profit, pay down debt, or use however you want.
Hey everyone, happy day after tax day. Um, for those of us in the accounting world, it kind of, for some, probably feels like New Year's Day. Um, a little bit of a hangover, even if you don't drink, uh, you still have a hangover. Super excited to be done with tax season. But here's the question I want to talk about. Um, if you follow the Profit First system, you have set aside money throughout the year into your tax account. And ideally, as of at least yesterday at the latest, you have made a payment towards your income tax payment. So let's just assume you filed, you know the dollar amount, and you've paid that. And now there's money still left over in the tax account. What do you do with this? You have a couple options. But here's the general principle: it's your money. You can do with it whatever you want. A lot of our clients treat it as an additional profit distribution, and then we have another group of clients who utilize that to accelerate paying down their debt, right? So, um, the same principles as the profit distribution. If I'm trying to pay down debt, I'm going to take The bulk of the profit distribution, and I'm going to apply that towards my debt principal. So if I have an extra profit distribution that's coming from my tax account, I would just pay that towards debt principal. Again, there's nothing wrong though if you decide I want to take this as a straight-up distribution into my account. You save the money. It's to benefit you as an owner, and you can choose to do that. Now the one thing I want you to make— I want to make sure that you look at on your tax account is that look at your tax balance as of 12/31, because if you have been following the tax or the Profit First system and putting money into your tax account January through May, you have been putting aside money to cover your 2021 or the current year tax bill. We don't want you to distribute that money. That money should still be sitting in the account when you're done. So let's say as an example that as of today I have $15,000 in my tax account. But let's say that as of December 31st I had $10,000 in my tax account. What that means is that in the course of this year I have saved $5,000 towards this year's income tax burden. I don't want to touch that. I want to leave it in there. So now I'm just looking at the $10,000 balance that existed at the end of last year. Let's say my tax bill ended up being $6,000. Well, that means I have the $4,000 that I can now take out of the tax account. I can put it into my owner's pay account. I can put it into my profit account. I can pay it towards debt principal, I can distribute it to myself, um, I can buy that thing I've been wanting to buy in my backyard, whatever it may be. You have the flexibility with that money now left over. So hopefully that makes sense. Look at the balance as of last year, compare that to what you owed in taxes. Any difference is the money that you would distribute out of it. We do not want to just any of the money that you've saved for the current tax year. But hopefully that answers your question. Those of you who had this, it is your money to play with. You don't have to leave it in the account if you don't want to. And yeah, enjoy. Remember, profit is a choice. Have the courage and wisdom to choose it.
