It's Tax Time - Are you going to make a profit or avoid paying taxes? By Bob Parker

What’s Your Perspective?
It’s 2010!  A New Year!  And yes, at this time of every year just like clockwork, it’s tax time.  That’s one part of business and personal life that we just can’t escape.

This article isn’t about tax and how to save on your taxes, as much as, it is about a perspective on tax and the profits of your company.  I’ll be the first to say that tax rates are already high (likely to get higher) and that each business and individual should make every effort to lower their tax through appropriate deductions and available credits.  This is good management.

Given this, however, we find people that manage the finances of their company with the objective of paying no tax rather than to make a profit. 

What’s the difference?  An actual story that I’m familiar with may illustrate this point.  We were referred to a business several years ago in which a business owner didn’t have the cash necessary to continue his business operations.  Upon investigation, we found that this business owner was so determined to pay no tax that he continued to purchase equipment and other assets for the write-offs.  He was meeting his objective of paying no tax while at the same time driving his business into bankruptcy.  He was literally paying at least five times more for equipment and other assets than he was saving on his tax bill.  Plus, he wasn’t even using the equipment.  His purchasing decisions should have been based on how these assets would help the business make more money.

This sounds extreme, but this is a true story.  The message here is manage your business and make your purchases to make money.  Too often the mindset is to minimize tax first rather than make money.  This is an important distinction.  Your first financial management point should be to make a profit.  This is what we’re in business to do. 

Another point to remember is that many business owners need to raise capital for the growth of their business, and they have a difficult time doing so.  Because most investors are only interested in those firms that demonstrate the ability to create strong and consistent earnings, profits are essential for obtaining capital.

Remember, you want to take advantage of every tax savings opportunity and tax credit available to you, but, making an attractive profit should be your primary objective.

www.parkerbusinessconsulting.com

Comments

[Jay B.]

Wonderful post... Very informational and educational as usual!

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