If you make money, you will owe some of it to the IRS. It’s good to make the money, but not so good to give some of it to the IRS. But that’s the law, and that’s the way it is.
Unfortunately, many people who make good money in their business during the year tend to forget about income tax. Then, when April 15 draws near, they panic. Many people have to borrow money to pay the IRS. This is the worst thing you could possibly do. Don’t let this happen to you.
Income tax planning keeps you out of trouble with the IRS
If you discover, during the first three months of the year, that your business is doing well, stop and compile the amount of money you’ve made as of year-to-date. Then, calculate the amount of income tax you think you will owe as if this were the end of the year. If you anticipate you will owe the IRS, and you have a good idea of the amount, put this money aside. Keep it in a savings account, so you can get to it when you need it. Also keep in mind that the amount is likely to change after the next three months.
Do this four times during the year, for each quarter.
It’s much better to put this money aside knowing you’ll have to pay it to the IRS at the end of the year, instead of getting surprised with a huge tax liability that you never saw coming.
If you don’t know how to calculate your estimated income tax, you should seek the advice of a CPA. If you do this, a tremendous burden will be lifted off you next April 15.