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$41,000 in the account. $16,000 of it already belonged to the IRS.
A fractional COO billing $220 an hour had $41,000 in business checking in late July and felt flush. He had just closed a retainer and was planning a long weekend. Roughly $16,000 of that balance was Q2 tax, earned and never set aside. The account said rich. The tax math said otherwise. The fix depends on which kind of balance you're looking at: if the money is payment for work you already delivered, the tax on it is already owed the moment it landed, whether or not you have invoiced anyone since. If it is a retainer paid in advance for work you have not done yet, part of that balance is not income yet at all; on a cash basis it typically becomes taxable as you earn it, not the day it clears your account, so two dollars sitting side by side in the same checking account can carry two completely different tax pictures. Most consultants never separate the two, which is exactly how a healthy-looking balance hides a bill that is already due.
Do this today: Open a separate savings account today and move 25 to 30 percent of every retainer into it the day it clears.
One fractional COO, late July
