How To Leverage Estimated Tax Payments To Improve Cash Flow

Did you know you can use estimated taxes as a cash flow tool, and also to set your business up for profitability and sustainability? I’ll show you how on this post!

Estimated tax payments isn’t a very exciting topic, it’s true. You might not even be sure if they apply to you or not, or maybe never even thought about them much at all.

But, believe it or not, estimated taxes are one of the best tools out there to leverage your cash flow and help ensure your business is sustainable and profitable. How, exactly? Let’s talk about that now.

It’s pretty simple. Paying estimated taxes means making payments throughout the year rather than in just one lump sum on April 15th. And, if you own a profitable business, you’re likely going to owe some sort of estimated tax payment.

That might sound like just another bill to pay that you’d rather not, and I get that! But, paying estimated taxes set you up not only for improved cash flow but also sustainability in your business. How?

Let’s look at 4 major advantages of paying estimated taxes that you might not have thought of before, and ways to implement them in your business.

#1. You proactively pay taxes throughout the year, so you don’t get a huge tax bill at the end of the year (that you might not have the money for!)

Seems obvious, right? If you pay your taxes as you earn throughout the year, you’ll avoid the “sticker shock” of a big lump sum on April 15th (not to mention a potential huge dent in your bank account!). If you don’t want a massive surprise bill at the end of the year that you don’t have the money for, paying estimated taxes makes a BIG difference.

I found this out in a BIG way when my business became profitable…

In the first few years of my business, I was just getting by, living off the money I made. I brought the “paycheck to paycheck” mentality of an employee into my business. Needless to say, I wasn’t proactively planning for taxes.

But then, when my business started showing a profit, I didn’t change that habit. Long story short, I ended up owing the IRS big-time, and not having the money to pay them!

So proactive planning is important not only for your taxes, but also for your cash flow. So in your business, pay yourself first, then pay your taxes. Going the estimated tax route makes this a lot easier to manage.

#2. You can implement strategies throughout the year to reduce your tax bill.

Of course, profitability is then ultimate goal of any business. And, when you’re making consistent money, your tax liability inevitably goes up. Knowing this, how can you prevent paying more taxes than you need to? By implementing tax strategies to balance your taxes and profits. Estimated tax payments makes this a lot easier.

For example, let’s say you’re anticipating a tax bill of $35,000. That’s a significant sum for to pay for anyone! But if you make estimated tax payments each quarter, not only is the bill easier to manage, but it’s also easier to implement tax strategies as you go to reduce your overall bill.

#3. You can avoid unnecessary fees and penalties.

Just like you don’t want to pay more taxes than you need to, you definitely don’t want fees or penalties when you can avoid them. Paying as you go helps reduce your chances of unnecessary fees. You also avoid the risk of penalties the IRS might impose.

For example, let’s say you don’t pay estimated taxes throughout the year, and plan on paying it all at year’s end. The IRS might actually impose a penalty on your business, with the logic that you owed taxes all year long and weren’t paying them. So you’re left not only with a huge tax bill but also extra penalties. No one wants that!

#4. You can check in with your business throughout the year, and plan for profits and sustainability.

This one is a little less obvious, but it’s powerful. If you pay your taxes throughout the year, you can see the big picture in your business more clearly. Here’s what I mean by that.

When you’re planning for taxes throughout the year, you automatically have frequent check-ins with your business. You get to see what is and isn’t working in your overall business strategy. It helps you ensure your business is having the most profitable and fulfilling year possible.

In short, these quarterly check-ins help you see where you are on the regular, so you can plan for success!

Now, here are some simple strategies to make estimated taxes and cash flow easier.

The estimated tax strategies that I implement for myself and my clients are simple but effective. Each month, I review the numbers in my business. Then, I put a certain percentage, usually 15% , of my net profit into a savings account. Then, every three months I pay my estimated taxes from there. Easy peasy, right? It’s a great way to plan for estimated taxes without feeling overwhelmed.

So start to rethink estimated taxes. Instead of seeing just another annoying bill you have to pay, think of it as being organized and proactive. Remember that you’re doing this to keep your cash flow going without getting stuck with a huge bill (and maybe even fees and penalties) at the end of the year.

Most of all, see estimated taxes as a tool to help you plan for success!

Until next time,

Love, light, and MONEY, Honey…

Kaylee