Save for Taxes vs Net worth

My husband sometimes gets income from freelance jobs. In Holland it is normal that you keep track of your freelance incomes in one year and the next year you pay what you owe (around june 2018 for income in 2017!!) 

Since we have a progressive taxes system and every year the income varies it's hard to predict how many of our income we have to set aside. So we always take in account the highest percentage and after doing the taxes, most of the times we have ourselves some holiday money left. 

I've been working with Ynab voor almost 2 years now, and the one thing that annoys me is that the money set aside on my ' tax saving categorie'  counts in my net worth.

For example: 

We have 10.000 euro Freelance income in 2017 spread over different months > Everything goes to: ' to be budgeted' 
I assign a total of 4.000 euro to the category ' tax saving'  
I assign a total of 6.000 euro to my spending categories

In 2018 I do my taxes, and we only have to pay 3000 euro in taxes. Then, I pay this from my tax saving categorie. And the 1000 euro left I assign to another spending categorie (holiday) So I make an -1000 adjustment on the column ' budgeted' in the categorie tax saving. 

First question: Am I doing it right/ most optimal?? 

Second question: It annoys me that my net worth for a really long time (From the day we earn the money, till the day we have to pay our taxes, several months later) is 3000/4000 euro higher then it's ment to be. The 3000/4000 euro seem to me as a provisional debt. Does anyone have an idea how I can correct it? The hard part is that the exact amount of   'debt' (If you can call it that) is not known the moment you get your money. 

So not a life changing question, but I'm really curious if someone can help me with this. It will help me sleep better :) 



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  • First Question: It's how I do it - I also have the issue where I need to make an estimate of taxes I will owe so put money into a category as I am paid to save for the future taxes. When the tax is calculated, I pay the bill and move any remaining money to another category to enjoy!

    Second Question: This one is a little more tricky! Net Worth should be the difference between current assets and current liabilities. Since the tax is a liability, in theory it shouldn't be in the calculation. The problem is that YNAB has no way of knowing that money in a category is for a future (or current) liability or you're just saving for a holiday. 

    One way to overcome the problem is to create a "Tracking" account in YNAB using "Other Liability" type. You can record the tax liability here. Tracking accounts don't impact the budget and don't have a category so you will still need to set aside the tax money in a category but the Net Worth report will take out any liabilities in your Tax tracking account.

    Like 3
  • Hi Marisss !

    I believe Mike Taylor covered everything in his post, but I'm going to move this over to the Small Business section just in case anyone else wants to chime in! :)

  • Thank you for this advice! I just set up an "other liability" tracking account for my estimated taxes, and while it kinda hurts to look at, I think it's going to be very useful in getting an accurate picture of our finances.

    Like 1
    • nolesrule
    • Been waiting 5 years for the Stealing From the Future fix...
    • nolesrule
    • 3 yrs ago
    • 2
    • Reported - view

    To question #1, it looks like you are handling it correctly.

    To question #2:

    I suggest the simpler route. Your question is about net worth and goes well beyond taxes, and could be applied to so many things that could make your YNAB experience more complicated.

    Let it be. Don't let the net worth amount bother you. The entire point of using YNAB is to have money ready to go when it's time to use it. Taxes are just another (future) expense. Your bank balance goes up when you're saving and goes down when you're spending. So does your net worth.

    The sooner you make that leap, the less complicated your financial life will be.

    Unless you are tracking all of your assets in YNAB, net worth will never be accurate anyway.

    Like 2
      • Nicolas
      • Cadet_Blue_Guitar.6
      • 5 mths ago
      • Reported - view

      nolesrule unearthing an old thread but still relevant. I am in the same boat as OP and your reply makes sense. It is just another future expense, but the fact it's so large has more of an impact as an event of significance (eg. I was considering net worth to use this as documentation to apply for a mortgage so such dip would raise unnecessary question), vs. a smooth graph in respect to regular expenses, that are both less expensive and more frequent.

      Also, can you please elaborate on your last point. Would you recommend liability account if you are tracking all your assets in YNAB?  If so, do you recommend setting income as split transaction with tax amount set as transfer to the liability account?

      • nolesrule
      • Been waiting 5 years for the Stealing From the Future fix...
      • nolesrule
      • 5 mths ago
      • 3
      • Reported - view


      Nicolas said:
      It is just another future expense, but the fact it's so large has more of an impact as an event of significance (eg. I was considering net worth to use this as documentation to apply for a mortgage so such dip would raise unnecessary question)

       I'm not sure how that's relevant. As I said in my original post, saving for a large expense increases your net worth, and spending it decreases it. Who cares about intermediate changes, as long as you are budgeting for the expense and have the money reserved before you spend it.

      The issue isn't changes in net worth or issues with applying for a mortgage (it won't be an issue), but rather the human reaction of seeing the line go down on a graph and interpreting that as being bad because if up is good down must be bad and so it makes them feel bad.

      Quite frankly, the answer is to get over it.

      I would not recommend an account in YNAB for tracking taxes due unless you have a bill from the tax authority and it will take you a long time to pay it off (essentially, treating it like a loan). otherwise, you are just putting a number in there to artificially manipulate the net worth chart.

      Like 3
  • Nicolas said:
    I was considering net worth to use this as documentation to apply for a mortgage so such dip would raise unnecessary question

    At least in the US (not sure if you're also in Holland), mortgage applications use your balances at the point of the application. You will have to provide 2-3 bank statements for your "main" accounts, and they might ask you to explain any "unusual" (in their opinion) outflows IF they show up in that timeframe. "I paid my self-employment taxes" is a perfectly reasonable thing to put in the requested affidavit, and a fake account is ineffective at avoiding that.

  • I'm going to have a tax bill this year (my stupid fault) and just next month I'm going to have over $10k in property taxes to pay.  It's gonna kill my net worth and age of money.  But that's how it goes. That's why I use YNAB.  The point is to have the money there when you need it.  How many people get hit with a tax bill, either expected or not, and then have to scramble like mad for the money??

    In fact, my late mom, well before I took over her finances, got hit with a $100k tax bill for a stock option she exercised and never withheld on.  She ended up taking out a home equity loan to pay it.  I didn't understand much of what was going on in those days, but I understood enough to know how irresponsible it was.

    Saving for taxes in YNAB, in my opinion, is the responsible way. Don't sweat it!

    Oh yeah, and she'd already spent the money on a new condo!

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