Being an entrepreneur is quite an adventure, isn’t it? The ups and down of starting your own business; seeing that business grow from nothing into something you can be proud of. Being an employee was awful, right? Your every move was dictated by somebody else. The vision of the company was someone else’s too. We’re all thankful we’re not employees anymore.
Every tax season I’m reminded of the one major perks of being an employee: your taxes are handled for you. At the end of February, you get a nice 8.5x11 printout that shows you how much you made, and then how much income tax, CPP, and EI was taken off your cheques throughout the year. Most of the time, if you’ve spent your money wisely (and sometimes even when you haven’t), you can manage to get yourself a nice little refund. Maybe it will pay for a tank of gas, or maybe it will cover your Spring Break. Either way, it’s a nice surprise when it shows up.
But we’re entrepreneurs! We don’t need someone else handling our taxes. We’ll diligently set aside 15% of our earnings each month into a high interest savings account. Regardless of how tempting it would be to spend that money, we will stand strong! Then, when it’s time to pay our taxes, we’ll transfer some of that saved money to the Receiver General, and the rest will be reinvested and saved for a rainy day.
Did you feel that sharp pain? That was me, pinching you, and waking you up from your dream. Sorry about that. It’s time to get back to reality.
The term “best intentions” is a dangerous one. We always have them, and always intend to carry them out. We rarely do. So, what’s the solution?
I have a few suggestions.
1. Be an employee
Keep a proper job, even a less-than-part-time one. Then, ask your employer to take off extra taxes each paycheque. Trust me, you won’t really notice the extra $50, but it adds up over 26 bi-weekly pay periods.
2. Hide the money
If you’re going to set aside some money for taxes, put it somewhere that would be difficult to get at without some type of discomfort. Whether it just takes 7 business days to access, or there are stiff penalties, just make sure it will force you to think twice before dipping into those savings.
3. Make instalments
If you’ve already got a year or two under your belt, you may have a good idea of how much you end up paying in taxes each year. Instead of trying to save it, why not make monthly instalment payments to Rev Can? If you know that in 2012, you’ll need to give the government $1,200 for 2011’s return, start sending $100/month this year. If you overpay, then you’ll have a shot at a refund. If you underpay, at least the b(p)ill won’t be as hard to swallow.
Now, I know that you investment geniuses out there will find many flaws with my suggestions. I know you could earn a lot more interest if you invested the money, and that’s fine. But for those of us who honestly know we don’t have the willpower to stay out of those savings, I think these ideas might help.
Have you found a better way to handle self-employment income taxes? Please let me know in the comments.