171 - The Ohh Shit Cycle - Continued
On this episode of the podcast I share my own personal experience on the Oh Shit cycle of back taxes.
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I want to start off by telling you that back taxes are more normal than you think. About a third of my students owe back taxes and another third usually aren't up-to-date on their quarterly taxes. If you get a letter from the IRS, don't freak out.
When I started my business I knew I should be saving for taxes but I kept procrastinating. I kept putting it towards expenses saying I'll make up for it later when i start making more. But what happened is instead of making up for it later, I started increasing my business expenses.
My first year of my business I didn't end up owing because my profit was low and my husband's refund covered what I owed.. The same happened my second year and in the third year I grossed $70,000, profited about $35,000 and I paid about half of the taxes and was left with the rest in back tax on top of my quarterly taxes for the new year. So I got off my money hamster wheel and decreased my expenses to increase my profit.
Then I got a letter that I owed 2018 back taxes and my 2020 quarterly tax savings went to paying those off. I then increased the my auto-save amount on my quarterly taxes to 40% to get caught up. I have privileges that not everyone has such as my spouse and his stable income as well as my business profit. Your ability to catch-up on taxes is based on how much discretionary income you have and are able to put toward it, it's different for everyone but if you're not in a position to make fast changes or save more, getting out of the Ohh Shit Cycle is possible and we work on it together in the Unf*ck Your Biz course.