People generally take two approaches to income taxes in their business. (This applies to income taxes at the personal level as well since many businesses are taxed at the individual level).
One approach is to work on lowering your income taxes as much as possible.
The other approach is to work on increasing your income taxes as much as possible.
Most people are in the first camp. If you're in that camp, at some point during the year (usually at the last minute when it's too late) you start looking for ways to lower your taxes.
Sometimes, it's because you discover that your estimated tax payments are not high enough to cover your income tax expense for the year and writing a big check to the IRS is going to be a problem (or its going to hurt to write it).
An amazing number of people then either underreport their income or deduct expenses that are not truly business expenses in order to get their income tax expense down. (That's also known as filing a fraudulent tax return.)
Otherwise, smart and honest people rationalize committing fraud with the federal government when it comes to income taxes. They figure everyone else is doing it, so why not me?
A Slightly Modified Version
A more reasonable version of this tendency to focus on lowering your income taxes as much as possible might be to say: "I want to lower my income taxes - without being foolish".
That statement makes a little more sense because it rules out the "stupid tax tricks" that people tend to focus on when their brain is wrapped around the notion of reducing taxes as much as possible.
But this approach is still misguided.
It's still too focused on tax expense rather than on the real target, which is making money.
The wise approach to income taxes is to say:
I want to increase my income taxes as much as possible - without being foolish.
But Philip, you say, are you telling me I shouldn't take all the deductions that are due to me? Are you saying I should take a patriotic stand and pay more than my fair share in income taxes?
Nope, that's not what I'm saying at all.
I want you to put your focus on what matters most, and that's on making more money. Because making more money will increase your taxes. You need to put your time and attention on improving profitability and cash flow in your business.
Making Money is THE Goal
Being successful financially starts with making more money. And making more money will increase your income taxes. That's the reality of income taxes.
You can have the most expensive tax attorneys and CPAs that money can buy, and you will still pay more income taxes when you make $2,000,000 a year than if you make $200,000 a year.
Which person would you rather be? The person that pays almost no taxes? Or the person that pays a really big number every year?
Choose wisely. J
|
Click here to get my blog posts delivered right to your email inbox. I publish one new post each week. (Privacy Policy: I will NEVER rent or sell your email address and you may remove yourself from this list at any time you choose.) |
Comments