Don’t forget to factor in this… when doing your Budget!!!
What does the word “budget” bring about for you?
For most people, it makes them feel like they are restricted, like they are in prison. They think about tightness, deprivation, suffering, or stress. While this is true for the short term, budgeting gives you control, freedom, and rewards you both in the short and long term. It allows you to tell your money what you want it to do for you now and in the future, that way you can have the lifestyle that you want.
When budgeting, taxes must be a factor. For example, imagine at the end of the year you find yourself with a big tax liability that you were not expecting.
You can do one of four (4) things:
- pay it to avoid interests and penalties for failure to pay, by using money you did not allocate for that purpose in your budget,
- request an agreement with the taxing authority to pay by installment,
- delay paying or
- do nothing.
In all the above options, paying your unexpected tax liability will certainly destabilize your budget and will require you to make some adjustments to your budget, which are not easy, especially if you are living paycheck to paycheck and/or do not have emergency funds. I do not recommend the third or fourth options because the bill will not go away, and the penalties and interests will not stop accruing until they are taken care of.
Income taxation affects how much we can budget for saving toward our future goals and the amount we can spend to fulfill our current needs and should not be omitted during the budgeting process.
We need to make sure that throughout the year, the proper amount of income tax is paid, whether we are employees or business owners.
What do we do? We need to know:
- How we are taxed,
- Our estimated tax liability,
- Our allowances and exemptions, and
- How to make payments throughout the year.
For additional questions and clarification, email firstname.lastname@example.org. We welcome any questions you have.
To Your Success,
Irma Oke, CPA