If you operate your micro contracting business as a sole-proprietor or a partner in a partnership, one challenge you might face is remitting your personal income taxes in a timely manner.
One of the most effective business strategies was gifted to me about five years ago by a close friend who operated several micro businesses.
It is an extremely simple solution, but very powerful.
Michael Gerber, author of The E-Myth says: 'the system is the solution'. This system might work as well for you as it has for me...
Every time you receive a payment (cash, cheque, credit card, e-transfer, free range eggs) remit 10% of the entire amount to your income tax account with CRA. Do it right away. You can set it up as a bill payment with online banking. Make no exceptions. Record the date, amount and confirmation number to be able to reconcile with the government's record of payments received.
The benefits of this system:
If you income split with your spouse, just divide the 10% in half and remit 5% to each of your tax accounts.
It's important to be committed to doing it consistently. It's the governments money and the sooner you give it to them the sooner you can get back to your business. If you had a regular job your taxes would be taken off at source, so in a sense this is the same. Remit your income tax before you pay other creditors, suppliers or yourself. I've remitted as little as $10 at a time. Previously, I felt like I had to wait until I had a substantial amount to send in. But those little regular payments are almost pain free and they add up quickly.
A variation on this system is to take 1/12 of the taxes you paid last year and pay that amount very month.
You may find that your situation requires a different percentage. Tweak as needed. I usually try to start the new tax year remitting at least 10%, rounded up a bit. A bonus is that if at tax time you find yourself owing a little more than you remitted during that tax year, you already have about 4 months of taxes saved in the current year's tax account. They can transfer the amount right away to cover the difference. You still have 8 to 12 months to make up the difference by increasing the percentage a little bit. Your system takes care of it!
Once you are comfortable using a system like this to keep up to date with your taxes, see if you can apply the principle to other aspects of your business. The keys for me are doing small, regular amounts and moving the money to a place where it is impossible or difficult to retrieve.
What system do you use to keep up to date with your income taxes?
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