#44: TAX SEASON WITHOUT THE STRESS: HOW TO ALWAYS BE PREPARED

Many chiropractors love what they do but struggle with managing their business finances—especially taxes. In this episode of Financially Adjusted, I break down how to avoid getting hit with a surprise tax bill. I’ll cover:

• The basics of business taxes and how they impact you
• A common tax pitfall to avoid
• Why saving 25-30% of your net profit is crucial
• The importance of tracking your profit & loss each month
• Action steps you can take today to get ahead of your taxes

Join my FREE Facebook Group: FINANCIAL ALIGNMENT FOR CHIROPRACTORS

Resources Mentioned:

• Episode 15: How to Stay on Track with Estimated Tax

Helpful Resource: Free Estimated Tax Guide

Email me with any questions you’d like answered in future Q&A episodes!

Recommended payroll software (affiliate links):
ADP
GUSTO

QuickBooks Online is my go-to accounting software. Get an amazing discount (30% off for 6 months) when you buy with my affiliate link below.
SIGN UP FOR QUICKBOOKS ONLINE

My favorite budgeting app w/ an amazing free version:
EVERY DOLLAR BUDGETING APP

My preferred business credit card with cash rewards (affiliate link):

If you have healthy behaviors around spending with a credit card, this is a great one to use and earn cash back. It also links up well with QuickBooks Online. If you have unhealthy spending habits with credit cards, please avoid using one! You need to be able to pay it off monthly and not carry a balance. I use this one for my business and it makes paying bills simple.

CAPITAL ONE BUSINESS CREDIT CARD 

Check out all my FREE financial resources in one place

Follow me on social media:
Facebook
Instagram
LinkedIn
Pinterest

Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.

Transcript

Hello there, my chiropractic friend. I hope that life and business are treating you well. Thank you for tuning in to the Financially Adjusted podcast.

As this episode releases, spring is upon us. It is March twentieth. I don't know where you live and what the climate is, but it's been a brutal winter here in central Pennsylvania with lots of cold temps so I am more than ready for spring and summer to get here.

It's a love hate relationship that I have with winter. I love skiing and playing in the snow but I really don't like those bitter cold temperatures when you really can't hang outside and do anything. I love spending time outdoors mountain biking, hiking and I get cabin fever pretty quickly after winter starts.

I think that this love hate sentiment is how some people feel about their business and managing the money in their business. Many chiropractors I know absolutely love what they do so much and they're happy that they can do it on their own terms and help as many people as possible to maintain their health in their community. However, they really dislike and maybe even hate the business and financial management side of running their own business.

Is this you?

If it is, you are definitely not alone. I meet many chiropractic business owners and business owners in general that feel the same way. If you didn't go to business school and have specific education and training on how to manage a business and manage the financial side especially, it can feel really daunting. I don't blame you if you feel this way and it is completely normal. Why would you feel comfortable and like the business side if you constantly feel like a fish out of water?

When it comes to taxes, I think many business owners like you have an extra special dislike for this side of the business. There are usually many reasons behind this, but I think one of the biggest reasons is that many business owners have been hit at one time or another with a big tax bill that surprised them when they filed their taxes.

Have you ever been in this situation?

If you have, I want you to right away throw any shame or blame out the window right now. That won't serve you. What I want is to teach you how you can plan and save for taxes so that you never face the situation again.

Now, before I jump into this topic today, I want to mention that I am not a tax professional. I'm a bookkeeping professional but I am not your bookkeeping professional. I'm here to provide educational information only and advise you to speak with your tax professional about your specific situation. In fact, if you haven't found a tax professional that you meet with for tax planning and strategy along with tax compliance (or just filing your taxes once a year), I want you to do that immediately. You should be meeting with your tax pro at least once throughout the year for a tax strategy and planning session, not just that one time a year at tax time. That's never enough because by then you've missed out on tax strategies that can benefit you and reduce your taxes.

Okay, moving on to today's topic which is how to avoid that big tax bill.

I'll start with a few important tax facts.

First, what you pay your taxes on. You pay taxes on your net profit which is what's left over on your profit and loss statement after the expenses are subtracted from your total income.

The second fact that I that you need to know is that taxes are considered a personal expense. You're likely either some form of an LLC or you're an LLC taxed as an S-corporation. A lot of chiropractors are. If that's the case, you’re what's called a pass-through tax entity which basically just means that you owe taxes personally on the profit that you generate in your business. It passes through as a personal responsibility to you, the business owner.

You can pay your taxes out of your business which is fine, but this gets recorded as a an owner's draw.

So, that's something that's important to know when it comes to your taxes. If you're an S-corporation, it's actually called shareholder distribution because you are considered a shareholder if you have an S-corporation. So, that's considered a personal expense but I think it's fine to pay out of your business. You can consult with your tax professional on that though and see what they advise for you.

If you're not in your first year of business, you should be sending in quarterly estimated tax payments to the IRS and your state department of revenue in order to avoid possible penalties and interests. This is going to cause unneeded stress and unnecessary expenses.

If you haven't been saving for taxes, I recommend planning to do that immediately. You need to be saving for taxes based on what your net profit is each month. If you're an LLC, I recommend saving around thirty percent of your net profit and if you're an S-corporation, I recommend saving about twenty-five percent of your net profit.

The reason there's a difference here is that when you're an s corporation, you pay less taxes on your profit because you're not paying those self-employment taxes local taxes, Speak with your tax professional though if you're thinking of becoming an s corporation, I know a lot of times this happens too soon for some businesses so you really need to speak with a good tax professional who can explain why you would benefit from becoming an s corporation and advise you properly based on your specific situation.

Make sure you understand all the ins-and-outs of being an S-corporation and make sure that it's beneficial for you and your specific situation.

In order to know how much to save for taxes every month, you obviously have to know what your net profit is in the first place. This is key. So, if you haven't hired an outsourced bookkeeper that does this for you, now's the time. This is crucial for so many reasons and knowing what your taxable income could potentially be is huge when it comes to being ready for taxes.

I did a deep dive episode on how to track estimated taxes in episode fifteen so I will link that in the show notes so you can go back and listen to that.

Today's episode though is designed to be more of a short and sweet touch on the basics kind of episode when it comes to the important steps to take to avoid a big tax bill.

We are currently in tax season, and some of you may find yourselves in this where you have a large tax bill and you don't have the funds set aside to pay for it. If this happens to you, I want it to be the last time.

You can make that so by following some steps that I'm laying out for you today. 

Number one. Get that P and L done each month so you know exactly what you should save in taxes. Twenty-five to thirty percent is great depending on your entity like I mentioned earlier.

The second thing is to save that in a special tax savings account that you don't touch. If this needs to be in an account that is in a separate bank account from the one that you on a daily basis, then you need to do that. Whatever you can do to keep that separate and avoid from touching it is what you need to do This is where really knowing your behavior is important certain maybe you won't have that problem and you're one of those people you could easily see that balance sitting there every day and not be tempted to touch it But if you're so who would be tempted to dip into that tax savings. The more out of sight you can make it the better.

And the third step that I want to touch on is sending in those estimated tax payments to avoid the penalties and interest. I mentioned this earlier. You should be sending in those estimated taxes to avoid any extra penalties and interest because why pay them if you don't have to. Why cause unnecessary stress in your life by having the IRS send you notices and then sends you bills for interest and penalties?

If you can avoid that it'll give you more peace of mind. And I don't like paying taxes either. Let's be real. Taxes suck but the IRS wants their money throughout the year so you're better off just complying and sending in something for estimated taxes to be compliant and make life less difficult and less expensive. So, talk to your tax professional about what they recommend you send in an estimated tax. You want to be compliant based on the prior year tax is or pay a certain amount based on your current. Net profit or your current tax liability.

So, it's totally fine if you're doing the estimated taxes based on what they estimate for you but I want to highlight huge mistake that I see business owners making and that is sending in estimated taxes thinking that they're good, and that they're totally compliant and that they paid in all the taxes that they owe, but in reality they still owe a bunch of money.

If you are a growing business, the estimated taxes that you're sending in aren't likely enough and you will likely owe more So this is why it's so important to save that twenty-five to thirty percent of total net profit.

This is what's going to help you avoid the situation of owing a lot more at tax time than you think you will and not having the money to cover it. If you save each month based on your actual net profit, you shouldn't be having that problem. You may get that big tax bill, but you are covered. You have it in your savings account. You planned for it, and you can just reach over and pay it without the stress and without the scrambling. And this is absolutely the key is just being prepared. This is what will give you that peace of mind and then make it stress free because you have the money, and you simply pay it.

Many business owners have a lot of stress and anxiety at tax time because cause of the uncertainty of what will happen. You haven't planned. You haven't plugged into education. You haven't made yourself aware of how much you can potentially owe, and that's what's causing that stress and anxiety. You're just hoping and praying that you won't have a huge tax bill and meanwhile, it doesn't have to be a mystery. You can a hundred percent avoid the situation and avoid the stress and anxiety by saving money based on your net profit.

This is absolutely within your control, and you can make it so. You absolutely have the power to get out of that shi*^y cycle where you feel out of control, and you're never prepared and you're scrambling to find the money. Let's get you out of that cycle because it's not serving you and it's just making it feel like a heavy burden to have a business when you get to the in this situation.

So, some action steps that you can take today when this podcast is over.

One, get that savings account set up at your bank or open a new bank if you have to in order to keep those funds out of sight.

Two, if you don't already get your P and L's monthly, talk to your current bookkeeper about doing that. Hire a new one if you have to and if you DIY, consider outsourcing your bookkeeping if you're not able to produce those accurate monthly reports, and you can't stay up to date.

Number three, set up a tax planning session with your tax professional for time in the middle of the year. It's 2025 so most tax strategies are gone for 2024 at this point, but you can be planning and strategizing for 2025.

It's not just about tax compliance. There are strategies that your tax professional can help you implement that can drastically reduce your tax liability. If your tax pro doesn't do tax strategy, you need to find a new one. You need to hire one that does. And one that will work with you to optimize your tax liability, reduce your taxes legally, based on your specific situation.

Number four, start tracking your net profit, tax savings, and tax payments in a spreadsheet or a piece of paper. However you want to do this. Start keeping track somewhere that you'll be able to look at each month of the year and track how much you've made in profit how much you've saved, and how much you've already sent in.

This will be valuable information that's all in one central location and it's so helpful to have that at your disposal to hand out to your bookkeeper to your tax professional. You could even ask your bookkeeper to help you track this for you and get something set up for you if you don't feel comfortable doing that yourself.

Definitely go back and listen to episode fifteen where I go into more detail on how to do this.

I also offer a done-for-you estimated tax tracking template if you feel like that's something you need. You can find that link in the show notes or you can go to my website and just click on courses at the top. This can be copied and pasted for each year so you can pay for it once and use it for many years to come. I also offer a tutorial when you purchase that that walks you through how to use it and how to set that up.

So, no matter how you're tracking your net profit, your tax savings, all of that, the important thing is that you're tracking it.

Avoidance when it comes to your finances isn't going to work for you or serve you. There will always be negative consequences to avoidance, and I don't want you to be in that cycle anymore. Most business owners I know avoid the financial stuff because they feel like they just don't know enough or they're not good at it. 

You're here and you're making an effort, so I applaud you for that. You're here trying to get educated and manage your money better so pat yourself on the back for that. That's really awesome.

Keep doing that. Keep showing up to learn and I will be here to teach you.

Make sure you subscribe to the podcast though wherever you listen because I don't want you to miss out on anything. I come out with a new episode every Thursday and like to present actionable simple steps that you can take in your own business to move the needle when it comes to managing your finances.

Remember that you do not have to be perfect at any of this. You weren't perfect at chiropractic when you first started learning and. You knew that you had to have patience, show up stay committed, and just like that running a business is a practice. So along with your practice of chiropractic, running your business including the financial management side is a practice. You'll learn over time and you keep showing up.

The key is taking those imperfect steps forward. That's what gives you clarity, and that's what makes the difference for you when it comes to managing your business and your money well.

So, until next time keep that in mind that action brings clarity and imperfect action is better than none at all.

Talk to you soon friend!