For any individual, and certainly small solo-entrepreneurial business people, predicting cash-flow – the timing of your anticipated income and expenses – is a big deal. Most people don’t like too many unexpected surprises when trying to manage cash-flow.
That’s why being able to predict your annual income tax refund can be important to your own personal finances. Many people rely on their tax refund to afford certain projects or purchases that are planned.
However, it’s difficult to plan purchases if you can’t predict things like your income within a particular month or series of months.
Being able to predict your tax return can be one source of ‘planned’ income that can potentially be relied upon as you outline your personal or business objectives.
If you haven’t already, you may want to try the tax refund calculator mentioned in the linked article to get an accurate prediction of what you can expect from your tax return.
If you’re looking to invest that tax return back into your business, or if you’re considering starting a business using your tax return as initial seed money, accurate planning is really the only way to carefully predict your ability to afford it.
The flip side is also true – knowing that you will owe money on taxes can help you plan how to pay them. Sometimes you haven’t paid enough into the government to cover all taxes. This can happens sometimes when you change jobs and adjust your tax deduction amounts with a new employer. It can also happen when you are self-employed and have not accurately estimated your quarterly taxes.
Again, either way, understanding what your return will be can help you plan better.
Posted by Nick Venturella
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