I want to share with you a tax tip. Unfortunately, we appraisers have to pay taxes. This may help you to make it less painful.
When I was a young appraiser, every year when April 15th rolled around and I saw what I had to pay in taxes, I was so worried I could not sleep for days. And it was not because I had not made a good living. I had! But I had not set aside any money to pay the taxes. How stupid was that?
So, I made some changes. I decided that I had to be a CEO first, then an appraiser. I had to run my business first since it was the business that let me be an appraiser. So, as part of my CEO responsibilities, I asked some questions of more mature appraisers and independent business people and I found the secret to avoiding this problem of not having enough money to pay taxes.
Here it is! Here’s the secret. It’s called an escrow account. This is an account separate from any of my regular business banking accounts. In fact, I keep my tax escrow account in a separate bank from the bank where I keep my business accounts. Why? Since the accounts are in different banks, it is difficult to transfer money out of the escrow account in Bank-B into a business account in Bank-A because of the time, effort, and bookkeeping involved.
Working this is straight-forward. I put 15% into the escrow account for every $100 I earn. I will do this first. I do this before I pay any other bills. This money sits there drawing interest until I need it.
Now, granted, my CPA helps me with my taxes at the end of the fiscal year which involves write-offs, tax credits, and so forth. But the point is, by putting this 15% into an escrow account, and then letting it sit there drawing interest until I need it, I no longer have the problem of too many taxes to pay but too little money to pay them.
As you know, tax day has been extended this year due to the Covid-19 pandemic. What a great gift you have been given to start preparing now.
I had to be a CEO first, a disciplined CEO, before I could be an appraiser. But this process has helped me personally and professionally to stay on top of my taxes.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 548 Tax Day For Appraisers and How to Prepare for It