If there is one thing that you don’t want to do in business, it’s under prepare for tax time. There is nothing like figuring out in early February (once all your 1099’s and W-2’s have come in) that you have not prepared well for April 15th and having to spend all your efforts until that date to scrounge up enough money to pay your tax liability. I’ve done it and so will you. It is just a matter of how badly.
Let’s say that you are a sole proprietor (all your taxable income flows to your 1040 via the Schedule C) and you realize February 15th or so that you owe 8K in taxes and that you now only have 60 days to come up with the money. Been there. Now lets say that you have an excellent spring and actually do come up with the money to pay Uncle Sam and still have enough money to buy those Ramen Noodles you love so much. It won’t take the IRS long to send you a nice letter asking you to kindly pay 2K per quarter from now on (or else) in the form of an estimated tax payment.
You see, the IRS would much rather have your 2K per quarter than your 8K once a year. You could look at it as the IRS doing you a solid and not letting you get so screwed next year or you could look at it as the IRS understanding the time value of money and wanting your money faster. The latter is true, but if it helps you get through the tax year, feel free to believe the former. If you make enough money, they will start asking for a monthly estimated tax payment but I doubt any of us have to worry about that much.
Just be sure to put away enough from each shoot to be prepared for tax time. It takes discipline and perhaps a second account to put that money in, but you can do it.
