CSI Accounting & Payroll Blog

How Much Should a Small Business Put Aside For Taxes?

Written by Bryan Cremeen | Aug 24, 2022 7:22:43 PM

How often do you purchase something without knowing how much it costs? For most people, the answer is probably “never” - or at least “not often.” Costs are always on the rise due to inflation, so you need to at least have a ballpark idea of what you’re signing up for before making any commitments.

When you work with an annual tax accountant, it’s pretty likely that you won’t know how much money to set aside for your taxes. CSI Accounting & Payroll believes that you should. That’s why we’ve been helping small business owners understand the ins and outs of taxes for more than 50 years.

Here, we take a look at the two factors that make up the “cost of taxes”:

  • Your tax liability (what you might owe back to the government)
  • The fee that your accountant charges to file your taxes

What You Owe the Government

After you file your taxes, it’s time for you and the government to settle the score. This is when you’ll either break even, receive a refund, or pay up.

Breaking Even

It’s unlikely that you’ll achieve a perfect “even score” - although that’s the goal. If your accountant doesn’t get you moderately close to an “even score” year after year, then that’s a sign that they’re not implementing quality tax strategy. In that case, you should consider looking into monthly accounting options.

If You Get a Refund

Ideally, you don’t want to owe money after you file taxes, but it’s a misconception that a refund is inherently a good thing. If you receive a large refund, that’s a sign that you’ve been missing out on money that could have been invested back into your business all year.

If You Owe Money

You may find yourself with a bill for unpaid tax liability at this stage. This is a pretty common occurrence and nothing to panic about. If you’re coming to expect a tax bill, how much should you have set aside to cover it?

For new businesses, we generally recommend that you take one-third of your gross income for the year and place it in a savings account for taxes. This amount may sound high, but it provides a buffer in case what you owe is higher than what you were expecting. Leftover cash can be working capital for your business. 

At this point, if you work with a monthly accountant, they can get a truer picture of what might happen next year. Plus, they can include you in the tax strategy and offer tax projections. They can do the same for established businesses that want a better tax outcome than they’ve had with annual tax accountants in the past.

What You Owe Your Accountant

Here’s the part that many small business owners forget about until the bill is due: paying your accountant! How much should you set aside for your accountant’s fee?

Annual Tax Accountant Fee

When you work with an annual tax accountant, you’re probably expecting a fee for filing your taxes, as well as hourly billing for reaching out with any questions. This amount can vary greatly depending on:

  • The firm you work with, including their experience and size
  • How much accounting activity your small business has
  • How complex your accounting operations are
  • How much time you spend working with the accountant

Most small businesses will usually be looking at a range from anywhere between $500-$2,500, but clients that have the ideal business activity to work with CSI usually have a range of $1,200-$2,000 (included in their monthly fee - not added on top). 

Keep in mind, more-established small businesses will be on the higher end, while some smaller, self-employed businesses will be on the lower end.

Monthly Accountant Fee

What about if you work with a monthly accountant? Well, that changes things. Since a monthly accountant is in your books all year long and reconciles your bank account and makes financial statements on a monthly basis, they already know what your taxes should look like.

Don’t forget: when you work with a monthly accounting firm like CSI Accounting & Payroll, the fee to file your taxes at the end of the year is included in your monthly accounting fee.

This is a major selling point when it comes to ending service with your annual tax accountant if you work with a monthly accountant.

Know What You’ll Owe in Taxes Next Year

Don’t walk into next tax season unprepared! Knowing the cost of your tax bill and your accountant’s fee is critical. 

As a general rule of thumb, you should save around one-third of your gross income for the year for your tax bill, plus an additional $2,000 if you’re working with an annual accountant. 

A monthly accountant at CSI Accounting & Payroll will not charge you an additional fee to file your taxes. Not to mention, there is great added value when you consider the types of advice that a monthly accountant can provide. If you’re interested in learning more about if CSI is a good fit for you, click the button below to schedule a free consultation.

Not ready for a conversation? No problem! Make sure that you know the cost of monthly accounting first to see if it’s a good fit for your business.