Budgeting for taxes
McKenzie is new at the small business game. She asks Dave how to budget for quarterly taxes and how much to save.
QUESTION: McKenzie recently started her own small business. She asks Dave how to budget for quarterly taxes and how much to save.
ANSWER: When you open a business, you should always open a separate checking account. All your business income, 100 percent of it, goes into that account. Nothing else goes into that account, and nothing comes out of that account, except business expenses. So, if only business income and expenses are going into and out of that account, what you have left, by definition, is profit.
So, when you take that home, set aside 25 percent of that for your federal, quarterly estimates. In most cases, that will put you pretty close, unless you make more than $60,000 to $70,000 in profits. At that point, you may want to kick your percentage up a little bit.