For many business owners, taxes are an annual crisis: money that isn't there, IRS deadlines bearing down and desperate financial decisions. Profit First breaks that cycle completely.
There's a pattern we see repeat year after year in hundreds of businesses: tax season arrives, we present a client's return, and the owner discovers they owe an amount they don't have available. Then come the painful options: a personal loan, a high-rate credit card, an IRS payment plan or —worse— ignoring it and piling up penalties and interest.
The cause isn't bad luck or a bad accountant. It's that the tax money never had a place of its own: it lived mixed in with operating expenses and, by Parkinson's Law, got consumed in the day-to-day of the business.
After implementing this system with our clients, we've watched that annual crisis simply disappear. In this article we show you how we do it, so your business always has the capital it needs when the payment date arrives.
tax surprises. When the system works, payment day stops being a panic event and becomes a routine 10-minute transfer.
Why tax money always disappears
The Profit First Taxes account solves a behavioral problem, not an accounting one. The problem isn't that owners don't know they owe taxes: it's that the money to pay them shares space —mental and physical— with the money to operate.
When a client payment comes in, the brain sees a total balance. That balance feels "available," and business expenses compete for it immediately. The percentage that actually belongs to the IRS has no visibility of its own, no physical separation, and therefore doesn't exist in day-to-day decisions.
How the Taxes account works
The mechanism is simple: every time you make a distribution —on the 10th and 25th of the month— a fixed percentage of the Income balance goes straight to your Taxes account, at your secondary bank.
Example with a 15% starting rate:
| Distribution | Income balance | × tax % | To the Taxes account |
|---|---|---|---|
| Day 10 | $40,000 | 15% | $6,000 |
| Day 25 | $28,000 | 15% | $4,200 |
In a normal month that's $10,200 provisioned, with no extra effort. The money accumulates pay period by pay period and, when your quarterly estimated payment comes due, it's already set aside and waiting. No crisis, no debt, no emergency payment plan.
What percentage should you use for taxes?
The 15% is a solid starting point for the Taxes account: a conservative average we start with and then calibrate. The exact figure for your business depends on your entity, your state and your profit —which is why we calculate it ourselves, on your real numbers.
| Your situation | What weighs on your tax bill | Starting % |
|---|---|---|
| Self-employed / sole proprietor | Self-employment tax + federal + state | 15% |
| Single-member LLC (pass-through) | Same as a sole proprietor | 15% |
| S-Corporation | Lower self-employment tax via a reasonable salary | 15% |
| Business with employees (payroll separate) | Add payroll withholdings | We calculate it with you |
Sales tax deserves its own account
If you sell products (or services taxable in your state), you collect sales tax. That money is not yours: you collect it to hand over to your state. The mistake we see most is treating it as available income; when the remittance date comes, it's already been spent.
Option A · Separate sales tax account
Option B · Include it in Taxes
What to do when the payment date arrives
In the United States, pass-through businesses pay estimated taxes every quarter to the IRS —and to your state, if applicable— with dates roughly on April 15, June 15, September 15 and January 15. If you've been provisioning well, payment day is the easiest thing in the world:
Confirm the quarter's amount
Pay from your Taxes account
If there's a surplus, don't touch it
If it falls short, cover and adjust
How to know if your percentage is right
The Taxes account percentage needs calibration. In the first months it's normal for it to run over or short; what matters is adjusting fast. This is what we review with each client:
If there's a surplus
If it falls short
If it always falls short
Setting aside tax money isn't saving: it's simply not spending what was never yours to spend.
Why you need current bookkeeping for this to work
The Taxes account is powerful, but its effectiveness depends on one critical figure: the right percentage for your tax situation. And only someone with access to your current records can calculate it.
Without up-to-date bookkeeping, we see businesses that:
- Provision over income that includes invoices not yet collected —overestimating their real burden.
- Ignore legitimate deductions that would lower their IRS bill —paying too much.
- Fail to catch credits or withholdings in their favor in time —when the IRS should be refunding, not charging.
- Have differences between what they file and what they record —inconsistencies that raise audit risk.
Review the series: Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6.
The most expensive mistake we see is reaching tax season without the money set aside. At DISSAU we don't just keep your bookkeeping current: we calculate your exact percentage for your entity and your state, and build it into Profit First so your business always has the capital it needs when the IRS comes knocking. Talk to a specialist.
