[00:00:00] Linzy: Hello and welcome back to another feelings and finances episode of the money skills for therapists podcast. These are the episodes where I answer your questions, the lovely therapists and health practitioners and coaches and perhaps others as well who listen to the Money Skills for Therapists podcast.
[00:00:18] Today’s question is from Suzanne.
[00:00:20] Suzanne: Hi, Linzy. My name is Suzanne. I have a question about saving for taxes. I follow the Profit First program. And when I did my percentages, I set aside enough for taxes, and I have no problem saving. That’s not the issue. and I have no problem paying my taxes because I have the money set aside. The feelings that come into this though, is
[00:00:47] I suspect that I have too much money in my tax account, but I’m actually afraid to dip into it just in case I need it. And because I don’t really know how to do the math, I don’t know how to get the data to make this feeling of anxiety go away. When it comes down to the end of the year, when I can project how much taxes I’m going to pay… Because I don’t pay quarterly; I like to save all my money in a high interest savings account and make the most of it that I can.
[00:01:20] But when it comes time to project, I have a rough idea of how much I’m going to owe. But there’s always money coming in, so it never really gets to zero, so I never really know how much extra I have. And it would be nice to take that extra money and put it into RSPs if I can. But it just feels so overwhelming and confusing because I don’t know how to do the simple math.
[00:01:48] Can you help me figure out how to get past this anxiety of I don’t want to be caught without enough money for my taxes. Thanks.
[00:01:59] Linzy: Okay, Suzanne, this is a great question. I can also tell you’re Canadian because you made reference to RSPs. So you know, you’ve identified that there’s a strong emotional and mindset piece to this. Right? Like you’ve got a great system. It’s working. You know, the money’s there to pay. You know, you clearly have a rhythm around this, but there’s a fear or distrust that there’s enough being saved.
[00:02:20] And there’s a lack of clarity on what money is for this year, what money is for last year. So as you say, you pay your taxes, but then there’s money you’ve already been adding. So what is extra, you know, there’s like a blurriness here and an anxiety and a fear of getting in trouble, which creates quite a fog, I’m sure when it comes to this piece.
[00:02:38] First of all, I would encourage you to spend some time with the part of you, if you want to use parts language or, you know, insert your therapy modality and point of view here… This part of you that is afraid of getting in trouble or not having enough, right? Spending some time and being curious about that.
[00:02:55] Like, is it about getting in trouble for the government? I know I have a fear of getting in trouble, right? So it’s certainly common amongst therapists, but do you know where that comes from for you? Can you spend some time maybe uncoiling that a little bit? What is the fear of what’s going to happen?
[00:03:10] What’s the worst that could happen, right? Because what I’m hearing is based on the fact that you’re already saving so well, consistently, chances are, if there wasn’t enough money there, you’re going to be short by like 2,000 or 3,000, right? And this is something that I talk about a lot in my course, Money Sales for Therapists, is being able to be with the good enough, right?
[00:03:34] Getting to tax time and owing 20, 000 and having 0, that is a big problem, right? That puts us on a payment plan. That is painful. You know, there’s going to be like big feelings of failure and what am I going to do? Panic. But considering you’re already saving, the margin of error is going to be so much smaller for you.
[00:03:52] The possibility of owing a bunch is quite remote, really. So I am curious if first of all, you can get in touch with how well you’re doing and the reality that chances are you might only end up being a thousand or 2000 worst case scenario, three or 4, 000 short because you’ve made a ton more and you’ve crossed a tax bracket,
[00:04:12] but it sounds like you have systems in place that would allow you to make up that money pretty fast. Right? So, the first thing I want to do is encourage you to be with that fear and connect with how well you are actually doing, because you have a great system in place that is working. But that brings us to our second point, which is the lack of clarity on how well is it working, right?
[00:04:33] You’re doing all these great habits, but you don’t know how close you’re getting to the target, and how much money is left over, but it sounds like you do know there’s some money left over. So in order to get clarity on this, you need to spend time looking at what numbers were for this year, and what’s for last year.
[00:04:51] Right? So whenever we go to pay taxes, as you say, we’ve already put in, you know, money, if you’re paying just at tax time, you’re not paying quarterly… which by the way, you probably will have to start paying quarterly, based on your income at a certain point, the government will want their quarterly money from you.
[00:05:04] So this also might be something that changes within the next year or two. But when you go to pay taxes, you’ve already got, let’s say your taxes set aside for the first four months of the year. It’s April; it’s tax time. You’re paying, let’s say your 2023 taxes, but you’ve already got four months of 2024.
[00:05:21] So the way to clarify what is for this year and what it’s for last year would be stopping at that point in time, Suzanne, and calculating, okay. I know I’ve put my tax money from January to April. Take a look at a tax calculator online. I actually have a tax workshop that we can link in the show notes, which helps you figure out based on your projected revenue for the year, what is your income tax amount going to be?
[00:05:46] But then as self-employed people, we also have those additional taxes. So in Canada, we have to pay matching CPP, Canada pension plan. If you’ve opted into EI, you also have to pay matching CPP. You know, the employee EI and employer EI, chances are you’ve not opted into EI. Most folks don’t. So we do know that there’s that matching element as well.
[00:06:04] You have to pay your income tax, but you also have to pay double CPP. Those numbers are knowable. So I’m going to put a link in the show notes for my tax workshop, How to Save Enough for Taxes, which gives you, I think we have a workshop, and we have a booklet. So we’ll put both. If you’re more of a video person,
[00:06:19] you can check out the workshop. If you’re more of a reading person, we have a PDF that you can go through that helps you determine how much you should have actually set aside for this year. Because once you know how much you should set aside for this year, then you can see what’s extra, right? And you could do this right now for this point in time. You can look at from January to now, how much money have I earned? Based on my income tax rate and that double CPP, how much money needs to have been set aside for this year
[00:06:46] so far? What is the target that I should be hitting? And then how much extra is there? Cause I am hearing that you know that this money could do better jobs for you than sitting in this tax bank account. And I absolutely agree. Right? And so this is something that you can actually do right now. Take a look at your numbers. Grab one of the resources from the show notes for this episode so that you can look at what is your income tax percentage based on what you’re expecting to make this year?
[00:07:12] And considering at the time of this recording, we’re coming close to the end of the year, you’re going to have an idea of what you’ve made so far, and you can project forward how much more you would be expecting to make. So let’s say you see that you are going to make 70, 000 this year. After you pay your operating expenses, there’s going to be 70, 000 left in the business that’s for you.
[00:07:30] Then you can look at, using my tool or even just looking at an online calculator, what is the tax bracket for 70, 000? What are your federal taxes? What are your provincial taxes? They’re going to give you a number, and what you’re looking for is your effective tax rate. That’s the average between all the different tax brackets.
[00:07:46] There’s going to be a number which is your effective tax rate, and it’s probably going to be something like 18%. Right? Then you can look up CPP. This is all in my calculator. Look at CPP. You’re going to double that number. So there’s another couple of percentages you’ll add there, and then you’ll get a real number.
[00:08:01] Let’s say you end up with 22%. You look at what you’ve made so far this year, maybe it’s 50, 000. You take 50, 000 multiplied by 22%. That’s what should be in your tax account for this year. Anything above that is extra. Find a better job for it, right? It sounds like you know your RSPs need some money. So send it towards your RSPs. For our American listeners,
[00:08:22] that is a retirement saving plan. It’s a retirement vehicle in Canada, similar to a 401k or a SEP IRA in the United States. Send that money there, so it’s doing that higher job for you. It’s like going into investments. It’s compounding, it’s saving for your future. And then if the scarcity part of you is still scared, you can also choose to leave a couple extra thousand,
[00:08:42] but I would say get in touch with that part of you that knows that bigger picture. This money has a higher job, that you can trust yourself to make up for a little shortfall if there happens to be one, if you do the math wrong, and get to the point where you are clear. This money is for this year; the money that was left from last year has gone somewhere else. And then next year when it gets to tax time, you can do the same thing, see how much money is for that year, so that you know that anything else that’s left after taxes is extra, right?
[00:09:10] So I think that’s going to go a long way to giving you the clarity that you are looking for in your tax savings. So congratulations for the great system that you have. These two steps of getting more in touch with where that fear is coming from and getting this extra level of clarity, I think is really going to lock in your system, Suzanne.
[00:09:27] So great work. If you, like Suzanne, have a question for me, just click on the link in the show notes… The other link, not the taxes workshop link and the taxes PDF guide link. You can also check those out. But if you want to leave me a question, just click on the link for submitting a question.
[00:09:44] It’ll take you to the podcast page. Super simple, just press record, share your name, share some context if you want, and share your question. I would be happy to answer your question in a future episode of Feelings and Finances. Thanks so much for joining me today.