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What To Know About Your Profit First Tax Account

August 13, 2018

What To Know About Your Profit First Tax Account

Here is one of the most common questions we get about the Profit First Tax Account and we wanted to share the answers with you!

Scenario: I am an owner in the business, and our payroll is such that my taxes are already deducted from pay. Do I still need to reserve such a high percentage in the Tax account?

Answer: Yes. The
Tax account will “reimburse” you for the taxes withheld from your
salary. While logically you could just increase the Owner’s Comp
allocation and reduce the Tax allocation with the same result, reimbursing
yourself for taxes withheld from your salary makes a big difference
behaviorally.

When taxes are deducted from your pay, it can feel like a
loss. This triggers the behavioral pain response of “loss aversion.” But if the
business pays your taxes directly or reimburses you for the taxes that were
“taken” from your pay, the negative association you feel with paying taxes
is reduced.  If you have taxes deducted from your pay, use the money allocated
to the Tax account to reimburse yourself for those taxes on a regular basis.

Another
benefit of allocating 15% to the Tax account is your tax liabilities
can’t be “hidden” from you as part of your salary. This will give you a
much better understanding of your real compensation and total tax liabilities.

Ready to maximize your profits? Schedule a free session here with one of our Certified Profit First Professional to uncover your profit.

Want to learn more about how Profit First will maximize your profits? Click Here to get the first 2 Chapters of the book Profit First for FREE. Provide your name and email and get the first 5 chapters for FREE!

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Profit First Strategies helps business owners experience profit.

Profit First Strategies

Profit First is a system that helps you produce profits in your business the first month and always. Using this approach to running a small business you can make profit a habit and not a remote possibility. The Profit First approach starts by rewriting the usual bookkeeping formula so that profit is taken and put in the bank with every bookkeeping cycle. The system follows through by instilling discipline in your budgeting and cash flow management. Read our articles to learn the basics of Profit First and Profit First Strategies that you can use this approach to make you business more successful and your business life more efficient and easier.
Profit First helps you experience profit.