A Tale of a Small Business Owner and Paying Taxes

blog-azlo-fables-ashleigh-early-lg

Ashleigh Early is a sales consultant and co-creator and co-host of the business-to-business (B2B) sales podcast The Other Side of Sales. When she formed her LLC, she opened separate Azlo business accounts for her two different businesses.

Why different accounts? That way, earnings from her different endeavors could go straight into each account. Money could then be pulled from these bank accounts either for an owner’s “draw,” or to pay for business-related expenses to keep her LLCs thriving. It made it easy to track when cash came in, and when it went out.

When tax season rolled around, Ashleigh tried to file her taxes on her own. “I got so confused with all the forms, self-employment credit, what counts as an expense, what doesn't,” she says. She decided to give up going the do-it-yourself route and hire a tax professional.

Luckily, the deadline to file taxes was extended due to the pandemic, so she had time to find an accountant and do it the right way. It turned out how much she needed to pay in taxes was off by a couple of thousand dollars. Good news: The extra time meant she could shore up the cash before taxes were due.

That miscalculation taught her how easily surprised one could be when the time came to pay Uncle Sam. Not having enough set aside to cover taxes for your business could lead to stress, headache, and costly blunders. It could’ve meant paying late fees and penalties to the IRS.

Ashleigh realized the importance of saving diligently for taxes. “It’s a good idea to over-assume how much you will owe,” she says. “The shift from tax dollars being withheld in your paycheck to making quarterly payments is a significant change.”

To stay on top of saving for her taxes, Ashleigh now aims to set aside 35% of each payment she receives from client invoices and other income streams. (While 35% is what Ashleigh sets aside, this might not be right for you. Consult a tax professional for your specific business needs.)

Ideally, she would like to squirrel away this money into a separate account. Instead of everything sitting in one place, she could parse out her money for taxes. “I want to make sure I don’t accidentally spend it,” she says. 

“Segmenting out the money into separate accounts would be a lot easier in terms of bookkeeping and records,” Ashleigh says. “As the business gets more complex, and as the amount of money [coming in] hopefully becomes more and more, that would be nice.”

Moral of the story

“Set aside money for your taxes and over-assume how much you will owe.”

Azlo Tip: Look out for our new Envelope tool, which is the perfect way to set aside money for taxes and other business expenses. With Envelopes, you can avoid accidentally spending funds designated for taxes without having to open another bank account.

Admin

Hi there! This post exists to offer you (hopefully) useful information and insights, but it cannot take the place of personalized professional advice. Please consult a qualified expert if you have questions about your business. Also, Azlo doesn’t endorse any third-party sites that are linked here.

Icon arrow leftBack to Blog

Related articles

Entrepreneur Story: Arthur Garcia of Contabi Alliance
One could say that being an entrepreneur is in Arthur Garcia’s roots. Growing up, the co-founder of Contabi Alliance saw his parents manage a string of small businesses—an ice cream truck, a taco truck, and a Mexican...
Joelle Lynn - Happy Girl Products
Joelle Lynn got her first taste of entrepreneurial freedom about a decade ago. She left her job as an auditor in mortgage-backed securities to open a waxing salon in New Jersey. At the time, she was going through a...
Kelyn D. Lanier - Alloi Progress Incubator
“Go to college. Get a good job.”  This is often the mantra that parents and teachers recite to children as they prepare them for adulthood. Most discussions about education relate to how it readies graduates for the job...