Tax season has arrived! This could be good news or not so good news, depending on who you’re talking to. Some are super excited because they are looking forward to receiving a large refund. Some, on the other hand, are anxious because they know they are about to be hit with a tax bill they can’t afford to pay. In fact, there are people having palpitations and sleepless nights over taxes this season… literally. If you fall in the latter categories, this blog is for you.
I will first address the W-2 employed individuals who have chosen to pay as little taxes on their paycheck as possible. There is nothing wrong with this approach, but it can become an issue if you spend most or all of your paycheck. If you chose to pay minimum taxes during the year, you will be writing a check to the IRS during tax season so plan accordingly. You can save a portion of money monthly, based on the estimated amount that you will have to pay, to make sure you have that amount ready when tax season rolls around.
If you are unable to put money aside every month, I will advise that you allow the IRS to tax high amounts from your paycheck. If paying your taxes in full every month will cause you to go in the red zone, then you have a cash flow problem, not a tax problem. In this case, you will have to cut back on expenses, bring in extra income, or do both. Do not count the money owed to the IRS as income. Trust me, it will only end in disaster.
The second group of people I will address are the 1099 individuals, or folks with lucrative side gigs. Unfortunately, not everybody in this category is working closely with an accountant and a bookkeeper to make sure taxes are paid during the year, so they end up with a hefty bill during tax season year after year. If this is you, here is my recommendation: get an accountant you can trust.
Come up with estimated quarterly taxes, have a bank account designated for taxes, and pay them every quarter. If you bring in a decent amount of money from your 1099, your side gig, or both, you can form an LLC. Work with an accountant to set you up as an S corporation so that what you are paid through your company has taxes already taken out. You can outsource a bookkeeper or do it yourself with apps like Quickbooks, Freshbooks, or Xerox.
Let’s be real, we all know that the IRS does not play when it comes to their money. Save yourself any stress by implementing a simple financial plan to deal with it. Boom, problem solved.
May this tax season be just another dread-free, neutral circumstance in your life!
PS: I help physicians get out of debt, and live wealthy lives. Does that sound of interest to you? If so, click this link to book a free 60 minute coaching consultation with me. I hope to hear from you soon!*