What percentage are you saving to help with taxes at the end of the year using automatic savings?

[Duey]

We are in Washington state and i'm curious if you are setting up automatic savings (it says per transaction) what percentage are you saving to help with taxes at the end of the year?

[Summer2024 · Accepted solution]

Hi, @Duey ! 

While I can share what other Washington state business owners typically do, please note that this is peer advice, and you should consult with a tax professional for guidance specific to your business situation.

General considerations for Washington state businesses:

1. State Tax Considerations:
   • Washington has no personal income tax
   • Businesses are subject to B&O (Business & Occupation) tax
   • Sales tax varies by location (ranging roughly from 7% to 10.6%)
   • B&O tax rates vary by business classification

Common savings approaches from community members:

Many Washington business owners report setting aside:

• 15-30% of each transaction for taxes and expenses
• Some break this down as:
  • 8-10.6% for sales tax (depending on your location)
  • 5-10% for B&O tax (rate varies by business type)
  • Additional buffer for federal taxes and expenses

Tips for using Square's automatic savings feature:

1. Consider setting up multiple savings destinations:

   • One specifically for sales tax
   • Another for B&O tax
   • A third for federal taxes/expenses

2. Review and adjust your savings percentage quarterly to ensure you're setting aside enough based on your actual revenue and tax obligations.

Important Notes:

• Your optimal savings percentage may differ based on:
  • Your business type
  • Location within Washington
  • Business structure (LLC, Sole Proprietorship, etc.)
  • Deductions and expenses
  • Overall revenue

Recommended Next Steps:

1. Consult with a tax professional to determine your specific tax obligations
2. Review your past year's tax payments to calculate your effective tax rate
3. Add a buffer percentage for security
4. Set up automatic savings based on these calculations

I hope this helps!

[rtfulk]

@Duey We live in Florida and we have 25% taken out. Not only for taxes, but it is a great way to save money. Everyone always says I will take a certain amount out and put it in savings, but rarely do. With Square savings it happens automatically and after a while you never miss it.

[DinaLRosenberg]

We're in NY and are an S-Corp which means our profits and losses roll to our personal taxes (we are a partnership so we split the profit or loss).

So far since opening we've had profit twice and the taxes on such were modest- we had the money in savings and were able to pay the bill (I think it was $4-5k total).

I have always been more concerned with maintaining our sales taxes- in New York State they come after you way harder on sales taxes over corporate profits (which you can get a payment plan on I think). I've seen my dad many years ago get HAMMERED by the state on sales tax.

Never underestimate a good accountant. We brought one on retainer as soon as we would afford to do so to handle our books, P&L, etc/