Every year around April 15th, many new entrepreneurs receive shocking and unexpected news from their tax preparer. They owe a lot more tax than they have cash available.
Why does this happen? When you receive a paycheck, taxes are withheld automatically, but as an entrepreneur you are paid a gross amount of money without accounting for taxes.
The IRS wants 15.3% of your net profit for self-employment tax; they also want 10 to 37% for income tax. In addition, most states want their share, too.
Proverbs 22:3 teaches, “The prudent see danger and take refuge, but the simple keep going and pay the penalty.”
The solution is hard but simple. Begin earmarking at least 25% of your profit for taxes. Set it aside and only use it for taxes.
