Benefits of Tax Accounts
Self-employed individuals and owners of pass-through entities (in which the owner, not the business is taxed) should use a "tax account" to accumulate funds for federal and state income taxes. Since these business owners are not subject to withholding, they may scramble to find the money at tax time. If you are in this category, here’s an easy solution: Create a money market or even old-fashioned savings account dedicated to this purpose. Putting aside a set amount of dollars throughout the year can help to avoid interest and/or penalties on tax underpayments that could result from lack of funds. It will also prevent you from depleting your main accounts in order to pay taxes owed. Talk with your financial adviser to find out how much you should save on a regular basis.
Barbara Weltman President BWideas.com Inc. Millwood, N.Y.
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