With the tax deadline rapidly approaching and it's time to finalize your taxes. I was talking with my CPA a few weeks ago and he had a client ask him: when does it make sense to stop making more money? We both laughed and of course my CPA's answer to his client was spot on... never. He said until the tax rate is 100% you should never stop trying to make more money, which makes sense to me. I signed and mailed my tax payments this past Saturday, it definitely hurt. However, paying taxes is something to be proud of; it means you are doing well. Today, I felt it appropriate to share a few random thoughts about taxes.
Refund = Bad
I run with a lot of ski bums in my personal network and many of them get tax refunds. I get it for sure because many of them don't make great money. However, you have to understand as a tax payer that refunds are not always good. That means you loaned the government money for the past year, rather than the other way around. If you always get a refund ask your CPA if there are any adjustments you can make to reverse that. Owing money at the end of the year is not a bad thing. It gives you more money to invest in your business or personal investments.
Tax Review =Prepared
I complain a lot this time of year about taxes because April is definitely the toughest time of year for me and my family. Not only do we owe for last year's taxes but we also have to pay estimated taxes for this year, all of which is due in mid-April each year. My wife and I both own our own businesses so we are required to pay estimated taxes. While we could delay on our estimated payments until later in the year, we try and avoid that. We were prepared to pay what we owe because each year we have a tax estimate done by our CPA in early December. I always tell him to aim high on his estimate so that if anything I over budget. Each December I have an estimate on our taxes and we now have four months to prepare for our tax amounts that we will owe in April. Most people skip a tax review prior to year-end and then get a big surprise once their taxes are prepared. Many are not able to pay the balances due because they didn't know that they would owe as much as they do. A tax review prior to year-end could give sufficient warning and allow you to plan accordingly.
Tip: Always plan a tax review and estimate prior to year-end.
Keep Making Money
As my CPA stated, keep making money. Until the government makes your tax rate 100% then it always makes sense to keep making more money. When business owners owe taxes many think they should try and make less money. I don't think you want to make less money you just might want to reduce your profits and taxable income. A tax review before year-end will give you a good idea of where you are at from a tax liability standpoint. Then you can make adjustments before the tax year changes over. Maybe it is a good time to invest in some assets like new inventory, equipment or other large purchases you have been holding out on. If you owe taxes don't try and make less money just make good strategic adjustments.
Tax time... nobody loves this time of year. If I could drill home one point it would be to make sure you do a tax review before the end of each year. A tax review before year-end is one of the most important steps that most business owners skip.