Setting tax rates Follow

Taxes are a fact of life in business, so you need to include a reasonable estimate for them in your forecast. Don't stress too much about this, though. This is business planning, not tax planning. The taxes we’re talking about here are theoretical expenses based on theoretical profits. It would be silly to get too specific about the details. Just set your standard rates to make sure that your forecast includes basic tax coverage. 

Note: If you're looking for employer taxes, please see Employee-related expenses: changing the Burden Rate .

 

Do I need to include taxes in my revenue streams?

There's no need to add any tax amounts into your revenue stream entries. Just enter the actual revenue numbers with no tax added. LivePlan will calculate your taxes and add them to the forecast automatically.

 

Setting tax rates

  1. On the Forecast tab, click More, and then click Taxes:
    tax-nav.png#asset:1713
  2. Click the Set Tax Rates button:
    settaxrates.png#asset:1165

Step 1: Set corporate tax rates

If your business is profitable in a given year, you will need to pay income taxes on that profit. Enter an overall tax rate. This estimated rate should cover all applicable income taxes — federal, state, local, etc. If you're not sure what to put, though, a 20% rate is probably close. It helps to keep in mind that income taxes typically apply only in periods when your business is profitable. 

Note that this rate is only for income taxes. Employee-related taxes like payroll and social welfare taxes are covered on the Personnel page. Other taxes, such as property taxes, are generally best added as regular expenses.

  1. Step 1 in this overlay relates to corporate taxes. Enter your estimated corporate tax rate (%):
    corporate-tax-rate.png#asset:1890
  2. Indicate how often you'll pay taxes (every month, once per quarter, or once per year):
    taxes-frequency.png#asset:1714
  3. Click Next to set sales tax rates. If you don't have any revenue streams in your forecast yet, just click Save & Close

 

Step 2: Set sales tax rates

Note: This step won't appear if you don't have any revenue streams in your forecast.

Some companies need to collect sales taxes from their customers. This might include a national general sales tax (GST), value-added tax (VAT), or other national, state, or local sales taxes. This sort of tax collection will not affect your profitability, since you are obliged to pay the collected taxes to the government on a regular schedule. But it will affect your cash flow projections for the time between when you receive the revenue and when the taxes are due to the government. It's important not to treat collected tax money as readily available cash.

  1. On the Sales Tax step of this overlay, indicate which of your revenue streams you will collect sales tax for:
    tax-revenue-streams.png#asset:1715

  2. Enter the sales tax rate (%) that you will charge your customers:
    estimatedtax2.png#asset:1076

  3. Select how often you'll pay taxes (every month, once per quarter, or once per year):howoftentax.png#asset:1100

    Related: Representing the VAT, HST, or GST in your forecast

 

Editing tax rates

  1. On the Forecast tab, click More, and then click Taxes:
    tax-nav.png#asset:1713
  2. Click the Set Tax Rates button:
    settaxrates.png#asset:1165
  3. Make the desired changes on the Corporate Tax and/or Sales Tax steps.
  4. Click Save & Close.

 

Where does this entry appear in the financial statements?

In the Profit and Loss table, you will see only income (or corporate) taxes. This is because paying income taxes is an expense of running a profitable business. Sales taxes, on the other hand, are added to your pricing and then those revenues are sent to your state and local government. This results in a net zero cost to your company.

Related: Why can't I see cumulative tax totals in my financials?

taxes-pandl.png

In the Balance Sheet, income and sales taxes are listed as shown below. If you're paying your taxes quarterly or annually, you'll see the amounts increase until the month in which you pay:

taxes-balancesheet.png

In the Cash Flow table, you'll see your tax entries expressed as "Changes in tax payable," meaning the increase or decrease in how much tax you owe in a given month or year. In the example below, we're paying taxes quarterly. So the changes are positive (meaning we owe more) in months where we're accruing taxes, and negative in the months in which we pay taxes:

taxes-cashflow.png

 

 

More on taxes:

 

More on forecasting:

Preparing a forecast

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