YOU ASKED: What’s the best way to save for taxes? High yield savings? Pay monthly? Quarterly? I’ve heard all these options, but what’s the best?
WE ANSWER: Planning for taxes is crucial to maintaining financial stability. Here are some smart strategies to ensure you’re well-prepared for tax season without stress.
High-Yield Savings or Money Market Accounts. One of the best ways to save for taxes is to set up a dedicated highyield savings or money market account. These accounts o er better interest rates than traditional savings accounts, helping your tax funds grow while keeping them separate from other business finances.
Monthly Savings Plan. Setting aside a portion of your income each month is an easy and e ective way to prepare for taxes. To figure out how much to save, estimate your annual tax liability and divide it by 12. This method works especially well for practices with steady income, ensuring that your savings grow while maintaining good cash flow.
Quarterly Estimated Payments. If you take profits from an LLC or S-Corp, the IRS typically requires quarterly estimated tax payments if you expect to owe $1,000 or more. These payments help keep you current with your tax obligations and avoid penalties. Saving monthly and using a high-yield or money market account allows you to set aside the necessary funds without disrupting your daily operations.
What’s the Best Approach? Save monthly in a high-yield or money market account to consistently grow your tax reserve. Base your quarterly payments on your actual earnings, adjusting for seasonal variations in your practice’s income. Use those funds to make quarterly payments, ensuring you’re always prepared.
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