To Your Health
August, 2008 (Vol. 02, Issue 08) |
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Some might wonder if 20 percent is enough since the tax brackets can be higher than that. Remember, most of the bills you pay out of your business account are for deductible expenses and you will not pay taxes on that money.
The checks you write to yourself for personal expenses are not deductible. Twenty percent should be more than enough. The good news is when your estimates are payable, you will have the money to pay them out of this tax account. When the final tally is done and you owe additional amounts, it will be in your tax account. No more scrambling around looking for money you don't have to cover your tax bill. And if there is any left over, you get to keep it.
Accountants have a way of not knowing how to add up what you make and they seem to always underestimate what your actual tax bill will be. With a money market account strictly for taxes, you will end up with a commodity that in years to come will be seen only in museums and on old television shows: money.
Money Market Account Basics
The first thing to understand is the difference between a traditional savings account and a money market account. A savings account is defined as an account offering a competitive rate of interest in exchange for larger-than-normal deposits. The difference with a money market account is that it offers a higher interest rate than a traditional savings account. However, many accounts have restrictions on the amount of transactions you can make in a month (such as five or less) and you usually have to maintain a certain balance to receive the higher rate.
As with bank accounts, money in a money market account is insured by the Federal Deposit Insurance Corporation (FDIC). The money in a credit union money market account is insured by the National Credit Union Administration (NCUA). Both of these are federal agencies, which means even if the bank or credit union goes out of business (very rare), your money will still be there.
The best thing about a money market account is that it puts your money to work for you. Here's how a basic money market account works:
- You open a money market account at a bank or credit union.
- The bank or credit union pays you interest on the money you deposit and leave in that account.
- The bank or credit union loans that money out to other people, but charges a slightly higher interest rate for the loan than what they pay you for your account.
