The first time I filed taxes as sole proprietor of a business owner, I was
S H O C K E D!
I could not the believe how unprepared I was to pay my taxes.
I had some savings, but not nearly enough to cover what I owed. Seeing that four-figure bill is stomach turning. I never want to experience that again, and I don't want you or anyone else to experience it either.
Hopefully, you are an accountant or have one to help you with your taxes. If you aren't one or don't have one, please hire a knowledge accountant who mostly works with entrepreneurs and sole proprietors to help you with financial planning and with your business taxes.
Even with these financial masters on your team, you will want to help them by making sure you some money for them to work with. I use a Three Bucket System.
Three Bucket System
If you do nothing else to prepare for your taxes, make sure you have enough money to cover any owed amount. To do this, you will need to put all of your money in its appropriate bucket.
Bucket #1 - TAX BUCKET; put HALF of your businesses income in here. Do not touch this money until tax time. This is NOT an emergency fund. This money does not exist until tax season.
Bucket #2 - PAY YOUR BUSINESS: put a QUARTER of the remaining half of your income in here to reinvest in your business. Use this money for ad campaigns, software subscriptions, or save it for a business emergency. BUSINESS EXPENSES ONLY. This is not your pay or your money. It is the business' money.
Bucket #3 - PAY YOURSELF: put the last QUARTER of the remaining half of your income in here. This is for you! You've worked hard! Look at you go! Pay yourself!
*A quick note here - there may come a time when you need to be an employee, perhaps the only employee of your business. Discuss this with your accountant or financial adviser.
Finances can be difficult, and I find this system to be a simple way to get started. It's been helpful to me in many ways, but it mostly makes me feel safe and secure. Hopefully, this helps you as well.