3 posts tagged with "taxes"

Starting a business is exciting, but one of the most important early decisions you'll make is choosing the right business structure. This choice affects everything from your daily operations and taxes to your personal liability and ability to raise capital. While it might seem overwhelming at first, understanding your options can help you make a confident decision that supports your business goals.

Why Your Business Structure Matters​

Your business structure is more than just a legal formality. It determines:

• How much you'll pay in taxes and when you'll pay them
• Your personal liability if your business faces lawsuits or debt
• How you can raise money and attract investors
• The paperwork and compliance requirements you'll need to manage
• How profits are distributed among owners
• Your ability to transfer ownership or sell the business

The good news? You're not locked into your initial choice forever. Many businesses start simple and evolve their structure as they grow.

Key Questions to Ask Yourself​

Before diving into specific structures, consider these questions about your business vision:

Ownership and Control

• Will you run this business solo, or do you need partners?
• Do you want full control over decisions, or are you comfortable sharing authority?
• Are you open to bringing on investors who might influence business direction?

Growth and Funding

• How big do you envision your business becoming?
• Will you need significant capital to get started or expand?
• Are you planning to raise money from investors or venture capital?
• Do you want the option to issue stock or bring on shareholders?

Risk and Liability

• How much personal financial risk are you willing to take?
• Does your industry carry higher liability risks (like manufacturing or professional services)?
• Do you have significant personal assets you want to protect?

Operational Preferences

• How much administrative complexity are you comfortable managing?
• Do you want the flexibility to easily move money between yourself and the business?
• Are you prepared to handle more formal record-keeping and compliance requirements?

Your Business Structure Options​

Sole Proprietorship​

Best for: Solo entrepreneurs, freelancers, and side hustles

A sole proprietorship is the simplest business structure and the default for anyone running a business alone. If you're a freelance designer, consultant, or selling products online, you might already be operating as a sole proprietor without realizing it.

Advantages:

• Incredibly easy to start with minimal paperwork and no filing fees
• Maximum flexibility in moving money between you and the business
• Simple tax reporting using your personal tax return (Schedule C)
• Full control over all business decisions
• Easy to dissolve if you decide to close the business

Disadvantages:

• No liability protection means your personal assets are at risk
• Limited growth potential since you can't bring on partners or issue stock
• Harder to raise capital as many investors prefer formal business structures
• Business ends if you do – it can't be sold or transferred easily

Tax treatment: Business income flows directly to your personal tax return. You'll pay self-employment tax on your net business income.

Real-world example: Sarah runs a successful copywriting business from home. As a sole proprietor, she enjoys keeping all profits and managing her business with minimal paperwork. However, as her client list grows and contracts become larger, she's considering forming an LLC to protect her personal assets.

General Partnership​

Best for: Two or more people starting a business together informally

A general partnership is what happens when two or more people go into business together without formally incorporating. You and a friend deciding to open a food truck together? That's likely a general partnership.

Advantages:

• Simple to establish with minimal formal requirements (though a written agreement is highly recommended)
• Shared decision-making and workload among partners
• Pass-through taxation means the business itself doesn't pay taxes
• Pooled resources and expertise from multiple people
• Easy to dissolve compared to corporations

Disadvantages:

• Unlimited personal liability for all partners
• Joint and several liability means you can be held responsible for your partner's business actions
• Potential for conflict without clear agreements about responsibilities and profit sharing
• Difficult to raise outside capital without converting to another structure

Tax treatment: Partners report their share of business income on their personal tax returns according to the partnership agreement.

Critical note: Always create a written partnership agreement that covers profit distribution, decision-making authority, dispute resolution, and what happens if a partner wants to leave. This prevents major headaches down the road.

Limited Liability Company (LLC)​

Best for: Small to medium businesses wanting liability protection with tax flexibility

LLCs have become increasingly popular because they offer the best of both worlds: liability protection like a corporation with tax flexibility like a partnership. You can have a single-member LLC if you're solo, or a multi-member LLC with partners.

Advantages:

• Personal liability protection separates your personal assets from business debts
• Flexible taxation – choose to be taxed as a sole proprietorship, partnership, S corp, or C corp
• Less formality than corporations with fewer compliance requirements
• Flexible profit distribution doesn't have to match ownership percentages
• Enhanced credibility with customers, vendors, and lenders

Disadvantages:

• Formation costs and fees vary by state (typically $50-$500)
• Annual fees and reports required in most states
• More complex than sole proprietorships but still relatively simple
• Self-employment taxes on all business income unless you elect S corp taxation
• State-specific regulations can create complications if operating in multiple states

Tax treatment: By default, single-member LLCs are taxed as sole proprietorships, and multi-member LLCs as partnerships. However, you can elect corporate taxation if it's advantageous.

Real-world example: Mike and Jennifer started a digital marketing agency as an LLC. The structure protects their personal homes and savings from business liabilities while allowing them to split profits flexibly based on their contributions. They recently elected S corp taxation to reduce self-employment taxes as profits increased.

C Corporation​

Best for: Businesses planning significant growth, seeking venture capital, or going public

A C corporation is a separate legal entity owned by shareholders. This is the structure used by most large companies and is often required if you want venture capital funding or plan to go public eventually.

Advantages:

• Strongest liability protection with clear separation between business and owners
• Unlimited shareholders with no restrictions on who can own stock
• Easy to raise capital by selling stock to investors
• Multiple stock classes allow different voting rights and dividend preferences
• Perpetual existence – the company continues regardless of ownership changes
• Established legal framework with clear rules and precedents
• Potential tax benefits at lower income levels with the corporate tax rate

Disadvantages:

• Double taxation – corporation pays taxes on profits, then shareholders pay taxes on dividends
• Expensive and complex to form with legal and filing fees
• Strict compliance requirements including board meetings, corporate minutes, and annual reports
• Less operational flexibility with formal governance structures
• Public disclosure requirements in many cases

Tax treatment: The corporation pays corporate income tax (currently 21% federal rate). Shareholders pay personal income tax on dividends received.

Real-world example: TechStartup Inc. chose C corp structure when founding their software company because they planned to seek multiple rounds of venture capital funding. The structure allows them to issue preferred stock to investors while maintaining control through common stock, despite the double taxation drawback.

S Corporation​

Best for: Profitable businesses wanting corporate benefits without double taxation

An S corporation isn't actually a different business entity – it's a tax designation you can elect for your corporation or LLC. If your business meets specific requirements, S corp status lets you avoid double taxation while retaining corporate benefits.

Advantages:

• Avoids double taxation with pass-through taxation like partnerships
• Self-employment tax savings on distributions (though not on salary)
• Corporate structure benefits with liability protection
• Transfer of ownership easier than LLCs in many states
• Credibility with stakeholders as a formal business structure

Disadvantages:

• Strict eligibility requirements – maximum 100 shareholders, all must be U.S. citizens or residents
• One class of stock only limits fundraising flexibility
• Salary requirements – owners must pay themselves "reasonable compensation"
• Increased IRS scrutiny around salary vs. distribution split
• More compliance burden than LLCs with payroll and reporting requirements
• Not ideal for venture capital due to ownership restrictions

Tax treatment: Business income, losses, and deductions pass through to shareholders' personal tax returns. The corporation itself doesn't pay federal income tax.

Requirements snapshot:

• Maximum 100 shareholders
• Only individuals, certain trusts, and estates can be shareholders (no partnerships or corporations)
• All shareholders must be U.S. citizens or residents
• Only one class of stock allowed
• Must be a domestic corporation
• Cannot be certain types of financial institutions or insurance companies

Real-world example: A successful consulting firm with four owner-operators elected S corp status. Each owner pays themselves a $90,000 salary (subject to employment taxes) but takes additional profit distributions that avoid self-employment taxes. This strategy saves them roughly$15,000-$20,000 annually in taxes while maintaining liability protection.

Comparing Structures Side by Side​

Making Your Decision​

There's no universally "best" business structure. The right choice depends on your unique situation, goals, and circumstances. Here's a simple decision framework:

Choose a Sole Proprietorship if:

• You're testing a business idea or starting a side hustle
• You want to keep things simple and minimize costs
• You're not concerned about personal liability exposure
• You plan to remain a solo operator

Choose a General Partnership if:

• You're starting a business with partners and want to keep things simple initially
• You're comfortable with personal liability
• You plan to formalize the structure later as the business grows
• You trust your partners completely (but still get a written agreement!)

Choose an LLC if:

• You want liability protection without corporate complexity
• You value flexibility in taxation and profit distribution
• You're serious about building a sustainable business
• You want enhanced credibility with a formal structure
• You operate in an industry with liability concerns

Choose a C Corporation if:

• You're planning for significant growth and outside investment
• You want to eventually go public
• You're seeking venture capital funding
• You need multiple classes of stock
• You have international or institutional investors

Choose S Corporation status if:

• Your business is profitable enough that tax savings justify the complexity
• You meet all eligibility requirements
• You want liability protection with pass-through taxation
• You're not planning to seek venture capital
• You can pay yourself a reasonable salary

When to Make the Change​

Many businesses start simple and evolve their structure as they grow. Here are common trigger points for changing your business structure:

From Sole Proprietorship or Partnership to LLC:

• Your business is generating significant revenue
• You're taking on more risk or larger contracts
• You want to separate business and personal finances
• You're worried about liability exposure
• You want more credibility with clients and vendors

From LLC to S Corporation:

• Your business profits exceed $60,000-$80,000 annually
• You want to reduce self-employment taxes
• You can afford payroll processing and compliance
• You meet all S corp eligibility requirements

From LLC or S Corporation to C Corporation:

• You're pursuing venture capital funding
• You want to go public eventually
• You need multiple classes of stock
• You have or want international investors
• Your business has grown beyond S corp limitations

The Practical Steps Forward​

Once you've chosen a business structure, here's what to do next:

1. Consult professionals: Talk to a business attorney and CPA who can provide advice specific to your situation and state laws.

2. File the necessary paperwork: For formal structures, file articles of incorporation or organization with your state.

3. Get an EIN: Apply for an Employer Identification Number from the IRS (free and takes minutes online).

4. Open a business bank account: Especially important for LLCs and corporations to maintain liability protection.

5. Create operating agreements or bylaws: Document how your business will operate, make decisions, and distribute profits.

6. Obtain licenses and permits: Check federal, state, and local requirements for your industry and location.

7. Set up proper record-keeping: Implement accounting systems appropriate for your structure.

8. Stay compliant: Mark your calendar for annual reports, tax deadlines, and other ongoing requirements.

Final Thoughts​

Choosing a business structure is an important decision, but it shouldn't paralyze you. Many successful businesses started with simple structures and evolved as they grew. What matters most is that you understand the implications of your choice and make an informed decision based on your current situation and future goals.

Remember these key principles:

• Start where you are: It's okay to begin with a simple structure and change later
• Protect yourself: Consider liability protection once your business gains traction
• Plan for growth: Think about where you want to be in 3-5 years
• Get expert advice: The cost of professional guidance is usually far less than the cost of choosing wrong
• Review regularly: As your business evolves, reassess whether your structure still serves you

Your business structure creates the foundation for everything you'll build. Take time to understand your options, but don't let perfectionism prevent you from moving forward. The best business structure is the one that supports your vision while giving you room to grow and adapt.

Ready to take the next step? Consider consulting with a business attorney and tax professional who can provide guidance specific to your situation, industry, and state requirements.

Taxes can feel like a special, complicated beast in the world of personal finance. But what if they weren't? What if you could treat them just like any other flow of money in your ledger? Good news: you can. By treating taxes as simple movements of value, your Beancount ledger will stay clean, easy to query, and—most importantly—understandable.

Below is a practical, no-nonsense pattern you can drop into a personal or small-business Beancount file. It’s a simple system for handling paychecks, tax payments, and even those pesky refunds that cross over into the new year. We'll cover the essential accounts you need, walk through real-world examples, and show you the exact queries to run to get the answers you need.

The Core Principles​

Before we dive into the code, let's agree on a few simple rules. These principles keep things logical and prevent future headaches.

• Separate "what it is" from "when the cash moves." 🗓️ This is the most important concept. A tax expense belongs to the year you earned the income (e.g., 2024), even if you settle the bill with the IRS in April 2025. If you don't separate the timing of the expense from the timing of the cash payment, your year-over-year reports will get messy and misleading.

• Keep your account hierarchy boring and simple. 📁 Name your accounts clearly based on the type of tax (e.g., IncomeTax, SocialSecurity). This makes your queries incredibly simple. Don't clutter account names with vendor names or form numbers like "W-2" or "1099"; use metadata and tags for those details instead.

• Embrace accrual for year-end adjustments. ⚖️ Even for a personal ledger, using a simple accrual entry at year-end is the cleanest way to make your reports accurate. It means recognizing an expense or refund in the correct year, even if the money doesn't move until the next. It’s one small extra step that saves you from mental gymnastics later.

• Write for your future self. 🧠 Your goal is clarity. Only add extra details, like the tax year, to an account name if it genuinely makes your queries easier. Avoid creating a new set of accounts every single year (Expenses:Taxes:2024:Federal, Expenses:Taxes:2025:Federal, etc.) unless you have a compelling reason. A flat structure is often easier to manage.

A Minimal Account Skeleton​

Here’s a basic set of accounts to get you started. This structure is US-centric, but you can easily adapt the names for your own country's tax system. Just drop these open directives into your Beancount file.

; --- US Federal Income & Payroll Taxes ---
; For money withheld from your paycheck
2024-01-01 open Expenses:Taxes:Federal:IncomeTax:Withheld       USD
; For estimated payments or tax-day bills you pay directly
2024-01-01 open Expenses:Taxes:Federal:IncomeTax:Payments       USD
; For tax refunds you receive
2024-01-01 open Expenses:Taxes:Federal:IncomeTax:Refunds        USD

; Your FICA contributions
2024-01-01 open Expenses:Taxes:Federal:SocialSecurity           USD
2024-01-01 open Expenses:Taxes:Federal:Medicare                 USD

; --- Other Common Taxes ---
; For sales/use taxes you pay on purchases
2024-01-01 open Expenses:Taxes:Sales                            USD

; --- Accounts for Year-End Adjustments (Optional but Recommended!) ---
; A temporary holding account for taxes you owe but haven't paid yet
2024-01-01 open Liabilities:AccruedTaxes:Federal:Income         USD
; A temporary holding account for a refund you're owed but haven't received
2024-01-01 open Assets:Tax:Receivable                           USD

This setup separates withheld taxes from direct payments and refunds, making it easy to see exactly where your money went. The Liabilities and Assets accounts are our secret weapon for keeping year-end reporting accurate.

Example 1: The Paycheck​

Let's book a typical paycheck where taxes are withheld automatically. The key is to record your gross pay first, then show how it was split between taxes and the cash that actually landed in your bank account.

2025-07-15 * "Employer Inc." "Salary for first half of July"
  Income:Work:Salary                                  -6,000.00 USD
  Expenses:Taxes:Federal:IncomeTax:Withheld             1,200.00 USD
  Expenses:Taxes:Federal:SocialSecurity                   372.00 USD
  Expenses:Taxes:Federal:Medicare                          87.00 USD
  Assets:Cash:Checking                                  4,341.00 USD

This single transaction tells the whole story:

• You earned $6,000 in gross income.
• $1,200 of it was sent to the IRS for federal income tax.
• $372 went to Social Security and$87 to Medicare.
• The remaining $4,341 is what you took home.

Pro-tip: You can attach metadata from your pay stub (like pay_period_end: "2025-07-15") to the transaction for an easy audit trail.

Example 2: Filing Your Return (The Year-Crossing Problem)​

Here's the scenario that trips people up: It's April 2025, and you're filing your 2024 taxes. You learn that after all your withholding, you still owe an extra $3,000.

How do you record this? You want the expense to count toward 2024, but the cash payment happens in 2025. Here are two excellent ways to handle it.

Option A: The Manual Two-Step Accrual​

This method is pure Beancount, no plugins required. It's a clear, two-step process.

Step 1: Recognize the expense at the end of the tax year. On the last day of 2024, you create a "true-up" entry. No cash is moving yet; you're just acknowledging the expense and parking it in a temporary liability account.

2024-12-31 * "Federal income tax true-up for 2024"
  Expenses:Taxes:Federal:IncomeTax:Payments             3,000.00 USD
  Liabilities:AccruedTaxes:Federal:Income             -3,000.00 USD

Now, your 2024 income statement correctly shows this $3,000 expense.

Step 2: Record the cash payment when it happens. In April 2025, when you actually send the money to the IRS, you clear out the liability.

2025-04-15 * "IRS" "Payment for 2024 tax return"
  Liabilities:AccruedTaxes:Federal:Income              3,000.00 USD
  Assets:Cash:Checking                                -3,000.00 USD

Your 2024 reports are correct, and your 2025 cash flow is correct. Perfect! This same pattern works in reverse for a refund—just use Assets:Tax:Receivable instead of the liability account.

Option B: Automate It with a Plugin​

If you prefer to keep the payment in a single transaction, a fantastic community plugin called beancount_reds_plugins.effective_date can help. It lets you assign a different "effective date" to a single line item.

First, enable the plugin in your main Beancount file: plugin "beancount_reds_plugins.effective_date"

Now, you can write a single transaction. The plugin will automatically split it behind the scenes to make your reports accurate.

; One entry; the plugin handles the rest
2025-04-15 * "IRS" "Payment for 2024 tax return"
  Assets:Cash:Checking                                 -3,000.00 USD
  Expenses:Taxes:Federal:IncomeTax:Payments             3,000.00 USD
    effective_date: 2024-12-31

Here, the cash portion is recorded on April 15, 2025, but the expense portion is retroactively applied to December 31, 2024. It achieves the same result as Option A with a different workflow.

What About Sales Tax?​

For most personal ledgers, sales tax is simple. If you're not claiming it back, just split it out as its own expense during a purchase.

2025-07-19 * "Local Grocery Store"
  Expenses:Groceries                                      12.32 USD
  Expenses:Taxes:Sales                                     1.28 USD
  Assets:Cash:Checking                                   -13.60 USD

This lets you easily track how much you're spending on sales tax over the year. If you run a business that deals with VAT, you'd use a more formal system with payable and receivable accounts, but the principle is the same.

Queries You'll Actually Run​

The whole point of this structure is to make getting answers easy. Here are some BQL queries to see your tax picture.

1. What was my total federal income tax for 2024?

SELECT cost(sum(position))
WHERE account ~ "Expenses:Taxes:Federal:IncomeTax"
  AND date >= 2024-01-01 AND date < 2025-01-01;

2. How did that total break down between withholding, payments, and refunds?

SELECT account, cost(sum(position))
WHERE account ~ "Expenses:Taxes:Federal:IncomeTax"
  AND date >= 2024-01-01 AND date < 2025-01-01
GROUP BY account
ORDER BY account;

3. Do I have any outstanding tax debts or receivables? (Useful for checking your work!)

SELECT account, units(sum(position))
WHERE account ~ "Liabilities:AccruedTaxes" OR account ~ "Assets:Tax"
GROUP BY account
ORDER BY account;

If this query returns non-zero balances, it means you have accruals you haven't settled yet.

Quick FAQ​

• Do I really need per-year accounts like Expenses:Taxes:2024? Probably not. The accrual method (or the plugin) keeps a flat account structure clean and readable. Only create per-year accounts if you find it makes your specific queries easier to write.

• Can Beancount calculate my taxes for me? Not directly, but it can prepare the data. Some advanced users write scripts to pipe BQL query results into tax calculation software, which is great for estimating your liability during the year.

• Is this tax advice? No. This is a bookkeeping pattern for organizing your data. The accounting is sound, but you should always consult a tax professional for advice specific to your situation.

Your Drop-In Checklist​

Ready to get started?

1. ✅ Add the account skeleton to your Beancount file (and adapt names for your country).
2. ✅ Book paychecks by starting with gross income and splitting out the tax postings.
3. ✅ At year-end, accrue any true-ups for payments or refunds using a liability/asset account (or use the effective_date plugin).
4. ✅ Track refunds as receivables and clear them when the cash arrives.
5. ✅ Run the BQL queries above to verify your totals before you file.

Keep it boring, keep it consistent, and your tax season will finally feel like just another part of your financial story—not a mystery to be solved.

Running a small business is already a constant juggle of cash flow, suppliers, and customers—tax surprises shouldn’t be another bowling pin in the air. The good news: with a simple framework and a few Beancount tricks, you can translate “I hope the tax bill isn’t huge” into a predictable monthly transfer.

1. Know What You’re Really Paying For​

Before you can set money aside, you need to know where it’s going. For most U.S. small businesses (especially sole proprietorships and partnerships), the total tax liability is a combination of several distinct obligations.

• Federal Income Tax: This is a progressive tax, meaning the rate increases as your income does. For 2025, brackets go up to 37% for single incomes above $626,350 and married-filing-jointly (MFJ) incomes above $751,600.
• Self-Employment (SE) Tax: This is the entrepreneur's version of FICA taxes (Social Security and Medicare) that W-2 employees pay. It’s a flat 15.3% on your first chunk of net earnings. The 12.4% Social Security portion stops once your profit hits the annual wage base, which is projected to be $176,100 in 2025. The remaining 2.9% for Medicare continues on all profits.
• State & Local Income Tax: This varies wildly by location, ranging from 0% in states like Wyoming and Texas to over 13% in California's top bracket.
• Quarterly Underpayment Penalties: The IRS wants its money throughout the year, not all at once. To avoid penalties, you generally must pre-pay at least 90% of your current year's tax liability or 100% of your previous year's tax bill (this threshold rises to 110% if your adjusted gross income, or AGI, is over $150,000).

Quick heuristic: Most U.S. solopreneurs who live in an average-tax state end up owing 25% - 30% of net profit once federal, SE, and state taxes are combined.

2. A Three-Step Estimate You Can Update Monthly​

You don’t need complex software to get a handle on this. A simple, repeatable process is all it takes.

1. Project Annual Profit: Look at your year-to-date performance and make a reasonable forecast for the full year. The basic formula is your friend: Projected Revenue - Projected Deductible Expenses = Projected Profit.
2. Apply an Effective Tax Rate: Start with a reasonable percentage. If you have last year’s tax return, you can calculate your effective rate from that. If you're new to this, the 30% heuristic is a safe starting point.
3. Divide by 12 (or 52): Take your total estimated annual tax and divide it by the number of pay periods you want to use. We recommend monthly. Move that amount into a dedicated tax-reserve bank account every month. If your cash flow is more volatile, a weekly transfer might feel more manageable.

3. Implement It in Beancount​

Plain-text accounting makes this process transparent and auditable. Here’s how to manage your tax savings in Beancount.

First, create a routine transaction to move your monthly savings from your primary checking account to a separate, dedicated savings account for taxes.

; Reserve July's taxes
2025-07-31 * "Tax reserve transfer"
  Assets:Bank:Checking          -3000 USD
  Assets:Bank:TaxReserve         3000 USD
  Equity:Opening-Balances

When you make a quarterly estimated payment to the government, you record the actual liability. The payment comes directly from your reserve account.

; Record liability when you file the quarterly payment
2025-09-15 * "Q3 estimated tax payment"
  Assets:Bank:TaxReserve        -9000 USD
  Liabilities:Taxes:Federal      6000 USD
  Liabilities:Taxes:State        3000 USD

This simple system buys you three powerful advantages:

• Immediate Visibility: Your Assets:Bank:TaxReserve balance always shows what’s already “spoken for.” You know at a glance that this cash isn't available for other business expenses.
• Accurate Profit: Because the reserve is treated as a transfer between asset accounts, your Profit & Loss statement isn’t distorted. You only record the tax liability when you actually file and pay it.
• Audit Trail: Every payment to the IRS or your state treasury ties back to a clearly tagged movement from your reserve account, creating a clean paper trail.

4. Fine-Tuning Your Percentage​

The initial 25% - 30% estimate is a great start, but you should adjust it based on your specific business model.

• High-Margin Consultants / Agencies: If you clear well above the Social Security wage base ($176,100), your effective tax rate will climb. A rate of 30% - 35% is likely more accurate.
• Product Businesses with Heavy Deductions: If you have significant costs of goods sold (COGS), inventory, or other deductions, your net profit margin is lower. A rate of 20% - 25% may suffice. Use Form 1040-ES worksheets each quarter to confirm.
• S-Corp Owners: Your situation is different. The "reasonable salary" you pay yourself is subject to standard payroll withholding (FICA and income taxes). Your distributions (profits paid out beyond salary) still require quarterly estimated payments, but often at a lower marginal rate since they aren't subject to SE tax.
• Multi-State Sellers: If you have "nexus" (a significant business presence) in multiple states, you may owe income tax in each. This can stack your liabilities. For clarity, create separate liability accounts in Beancount, such as Liabilities:Taxes:State:CA and Liabilities:Taxes:State:NY.

5. Automate, Review, Repeat​

A system only works if you use it. Make it effortless.

• Automate: Link your main operating account to a high-yield savings account named something like "TaxReserve." Schedule an automatic transfer to occur right after you close your books each month.
• Review: Re-forecast your annual profit quarterly. If Q2 sales blew past expectations, increase your monthly reserve amount immediately. Don't wait until January to discover you've under-saved.
• Repeat: Keep key documents organized within your Beancount directory. Saving last year’s final tax return (document: "2024/Taxes/Form1040.pdf") gives you one-click context when discussing numbers with your CPA or planning for the next year.

Closing Thoughts​

Tax bills feel random only when the set-aside process is. By baking a percentage-based reserve directly into your double-entry accounting flow, you trade anxiety for algebra—and Beancount makes the math (and the audit trail) trivial. Review your rate each quarter, keep Assets:Bank:TaxReserve funded, and April 15th turns back into just another day of business as usual.

Disclaimer: This article is for educational purposes only and isn’t tax advice. Always confirm numbers with a qualified professional for your jurisdiction and entity type.