“A paradox of life. The problem with patience
and discipline is that developing each of them
requires both of them.”
~Thomas M Sterner
One of the more insidious things to creep into a successful Broker’s life, into the life of just about any and all commission sales agents who are “lucky” enough to be paid in pre-tax dollars, is the problem of tax planning.
Planning is not often the strong suit of the strong salesperson.
Specifically, planning to pay income taxes on time.
A casual conversation with a tax agent quickly reveals that the top group of people in tax arrears are not simply small business owners in general; specifically, the people in arrears are Realtors, Insurance Agents, and Mortgage Brokers.
Making CRA’s hitlist; outlined in 12 simple steps:
1. Human Being (HB) starts a new profession.
2. HB struggles dearly for the first three years, incurring no income tax bills whatsoever.
3. HB has a breakout year and earns strong dollars.
4. HB, not having earned any taxable income for a few years or more, has no ingrained habit of setting aside X percentage of each cheque for future taxation.
5. HB arrives at tax-time following the breakout year with enough earning momentum into the new year to (mostly) address the previous tax year’s bill on time or close to it.
6. HB’s stellar income trajectory marches onward, income rises to wonderful levels (the tax burden is also rising, but is willfully “unseen”).
7. All outstanding household bills are paid, a car or two is upgraded, perhaps a few other luxuries added to life. A renovation, a vacation, a few stay-cations, life is grand.
8. And still no habit of setting aside a fixed percentage of each commission cheque for income taxes is formed, the expenses of life expand to fill (gross) income allotted.
9. HB gets the tax bill for stellar year number two—and cannot come close to paying it off in time.
10. HB goes on a tax plan to pay the taxes due just in time for…
11. Year #3’s tax time. Leaving HB perpetually indebted to CRA.
12. HB tightens belt considerably not only to pay off last year’s taxes, but also set aside next year’s in advance.
HB’s brain screams against this, perhaps the family members scream a little too. HB and family have grown accustomed to spending it as it comes in. Saving is a new skill to learn, a new habit to form, one that they never previously had the luxury of needing to learn.
HB goes one route or another:
Option A—keeps on crushing it, earns their way out while living a frugal life and gets ahead of the curve. Two years of pain, and then relief like never before.
Option B—yields to the crushing weight of all the obligations and suffers a down market that stops the money train before they catch up with past due tax bills. HB’s world is turned upside down as judgements, liens, garnishing of wages, and worst of all the judgement of others comes into play.
We are all HBs, so what to do? Option C is what. Start forming the habit of setting aside even just 15% of gross earnings in an account that nobody touches. This account has no cheques, no debit card—an account that is a true pain in the ass to access money from.
Live ahead of the curve. Live your life not one dollar at a time, live it 85 cents, or better yet 50 cents, at a time.