Nothing is certain but death and taxes.
Except that taxes are very rarely certain—and in the U.S., taxes are a labyrinth of confusion.
Our tax system is founded on the idea that the government knows how much we owe them... but they're not going to tell us—we have to guess.
And if we guess wrong? We either pay more or go to jail. It’s not really the friendliest system.
That might be why taxes are a bit of an afterthought for small business owners. For most, having a “tax strategy” means making sure you’re dumping money into a tax reserve savings account so that you have enough to pay whatever it is that you’re supposed to pay at the end of the year. But that’s pretty much where it ends.
Let me be clear: that is a great—and essential!—first step because there is real risk of losing your business if you don’t have enough cash to pay your tax bill. And, even worse, if you ignore paying your taxes for too long? Sometimes you just can’t come back from that.
But there’s another side: having a strong tax strategy allows you to avoid risk, yes, but also to use that strategy to ensure that every single dollar in your business is being used in the MOST effective way possible.
The reality is that every dollar that you spend paying taxes that you didn't have to spend is a dollar that could have used on something else.
This month, I’m covering risks, resilience, and the relationship between the two. So far, I’ve talked with financial behaviorist Jacquette Timmons about identifying financial risks and building resilience. Last week, Priya Malani laid out just how important it is to know how much money is coming in—and out—of your business.
Today, I’m excited to discuss the importance of accounting, bookkeeping, and understanding your taxes with Luke Frye, cofounder and CPA at Timber Tax Accounting.
Luke was the first accountant at Bench.co and has been helping entrepreneurs with their accounting and taxes for nearly a decade. He knows what it's like on both sides of the table as he had his own business as a teenager where he learned how to manage his quarterly taxes.
Listen to the full episode to hear:
- Tax issues that service business owners should be thinking about (and what you might be missing out on)
- What type of account Luke recommends that self-employed people use to save for retirement
- LLC vs S-Corp from a tax perspective
- Why not saving for taxes is a huge risk