September 15 Is Two Weeks Out

You had a good summer. The phone rang, the schedule stayed full, you ran the machine six days some weeks and the deposits kept landing.

And somewhere in the back of your head there's a date you half remember. Somebody told you about it once. Your buddy mentioned it. It's got something to do with quarterly.

September 15. Two weeks from today.

Most washers I talk to know the date exists. Almost none of them know their number. So they do the thing anybody would do — they wait, and hope it's small.

It isn't small. And the worst part is it was never a surprise. You just never had a way to see it coming.

Lets fix that this morning. Twenty minutes, three steps.

Step one: find your profit, not your deposits

Open your bank and add up every dollar that came in from January 1 through August 31. Then add up every dollar that went out for the business. Chemicals, fuel, your helper, insurance, the truck, tips, hoses, the software, all of it.

Say you're the washer in this example.

Money in: $148,000. Money out: $97,000. Profit: $51,000.

That $51,000 is what gets taxed. Not the $148,000. Not what's sitting in your account this morning. The profit.

Write that number down. Everything else comes off it.

Step two: the two pieces you can figure out yourself

There are three things pulling on that $51,000. Two of them you can work out on your phone right now.

Self-employment tax. This is your Social Security and Medicare, and you pay both halves because there's no boss paying half for you. It runs 14.13 cents on every profit dollar.

$51,000 × 0.1413 = $7,206.

Louisiana. The state went to a flat rate. 3 cents on every profit dollar.

$51,000 × 0.03 = $1,530.

That's $8,736 and your federal income tax hasn't taken a dime yet.

The third piece is your federal income tax, and that one moves depending on whether you're married, whether your wife works, and how many kids are on the return. I don't prepare income tax returns, so I'm not going to sit here and guess yours. Your tax preparer can give you that number in ten minutes if you send them the profit figure. That's the whole reason step one exists.

Step three: the number for September 15

The September payment covers June, July and August. Your big months.

Of that $51,000 in profit for the year, $26,000 of it came in those three months. That's summer in Louisiana — pools open, mildew everywhere, everybody wants the house done before the family comes.

Twenty-five percent of $26,000 is $6,500.

That's your September 15 number.

You've got $2,100 in the tax account.

You are $4,400 short.

Why 25 cents

You just watched self-employment tax and Louisiana eat 17.1 cents of every profit dollar before anybody talked about income tax. Twenty-five leaves you about eight cents to cover the federal piece, which is where most washers at this income land.

If your wife has a good W-2 job, your household sits higher and 25 won't get there. Make it 30.

Either way it is one number and it never changes. Every deposit that hits your account, move a quarter of the profit portion into a second account the same day. Not at the end of the month. The same day, before you look at the balance and feel rich.

That account is not your money. It was never your money. You were holding it.

"I don't have $6,500"

I know. That's most of this industry in September, and it's the reason nobody wants to open the envelope.

Here's the order to work it, and it's not complicated.

Pay what you can by the 15th. The charge for paying late is figured on what's still unpaid. Send $2,100 and you owe the charge on $4,400 instead of $6,500. Send $4,000 and it's smaller still. Partial is not failure. Partial is math.

Then go get your money. Pull up every open invoice this afternoon. Invoice every job you finished last week and never billed. Call the two commercial accounts sitting on forty days. There is almost always three or four thousand dollars floating out there that you earned in July and never chased.

Do not put it on a credit card if you can help it. A card at 26 percent costs you more than the late charge does. This is one of the few times where owing the government is cheaper than owing a bank.

Then open the second account before you close the laptop. Today. Not after the season. The whole reason you're short right now is that there was never a wall between the money you keep and the money you're holding.

The false profit narrative, September edition

Here's what actually happened to you this year. You looked at a full schedule and a full account all summer and you priced like a man who was doing great. And you were doing great — right up until you remember that a quarter of the profit was never yours.

That's the false profit narrative. Not lying, not stealing. Just a number that was always coming and nobody ever put it on your calendar.

Most accounting firms will show you this in March. Nine months after you could have done anything about it, on a return that costs you $700 and comes with no phone call. They aren't in your corner, they're in your wallet. A number you get in March is a bill. A number you get today is a decision.

The stakes

October is coming. The phone gets quiet, the schedule thins out, and the money that has to carry you and your guy through the slow months is whatever survived the summer.

If $6,500 of that is a tax bill you never planned for, it doesn't come out of your profit. It comes out of December. It comes out of your helper's hours. It comes out of the plates on your table and his.

Two weeks. Twenty minutes today.

Recap

• Your tax is on profit, not deposits. Money in minus money out.

• Self-employment tax is 14.13 cents on every profit dollar. Louisiana is 3 more.

• Set aside 25 cents of every profit dollar. Thirty if your household has other income.

• The September 15 payment covers June, July and August.

• If you're short, pay what you can, chase your open invoices, and open the second account today.