From the course: Consulting Professional Weekly Tips

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Set up a tax reserve account

Set up a tax reserve account

From the course: Consulting Professional Weekly Tips

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Set up a tax reserve account

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- When you're running your own firm, it's a good idea to set up a separate savings account for withholding for big items. When tax time comes around, you better have the cash available to pay. Set up a tax withholding savings account. When you receive a client payment, put an estimated amount directly into that reserve account. Build a spreadsheet, or work with an accountant to estimate how much you're going to need to pay in your taxes. I have a model that I use to calculate that liability. When I sell a new engagement and I get a payment in, it goes into the spreadsheet, and that spreadsheet then estimates for me how much I owe in federal, state, and local taxes. I then set that money aside so I can pay those liabilities when they're due. The other nice thing is you can earn interest on that money until it comes time to pay those taxes. That reserve account will also ensure you don't get caught short when it comes time to pay. Make sure your funds are quickly available. Have this…

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