The Best Way to Handle Sales Tax In Your Business
I was working with a business owner not long ago who was incredibly stressed about their taxes.
In the past they weren't great about setting money aside for their quarterly payments, so they were hit with big tax bills the following April.
As they implemented Profit First, they opened a bank account for taxes and began setting money in there with each sale they made. It was working beautifully!
Well, except for ONE thing...
They made the common mistake of putting their federal/state taxes AND their sales tax in that account.
This wasn't the end of the world. Honestly, I was just glad they actually saved the money! But it did create a small headache and was throwing off their numbers.
As business owners, sales tax isn't our money. We are collecting it on behalf of the government. Therefore we need to set it aside in its own bank account (separate from the income tax account) before running our numbers.
Let's say you brought in $10k in revenue, but 10% of it was sales tax. That means your business didn't earn $10k, it earned $9k and collected $1k for the government. Immediately take the $1,000 and move it to your sales tax account. Then, you can run your business on the remaining $9,000.
If you collect sales tax, how have you managed it in your business?
Most business owners struggle with managing their money, resulting in small paychecks for themselves. At Craig Dacy Financial Coaching, we help make managing your money simple. That way you can pay yourself what you want, when you want it.