No, I’m not a fan of taxes, either. In fact, I’m furious that our country has become one giant treadmill – running like crazy but not getting anywhere – because we now work for our government, not the other way around (but this isn’t my newsletter on politics…so I’ll leave it at that!).
But, taxes are a fact of life, and they are the biggest expense you will have as a business owner in this country. You must have a strategy for success.
Here’s your strategy.
You should do everything legal to minimize the taxes paid per dollar earned. But once you’ve done that, your goal is to maximize the total taxes paid!
What I mean is that the way to pay more taxes is to make more money than you ever have before. And that should be your goal…my goal…everyone’s goal in the next year.
Make so much damn money that you can write a big fat check to the government with a smile on your face, knowing that it’s a crystal clear indication of the type of year you had.
But you shouldn’t pay any more than you have to per dollar earned, or you are just forfeiting your money to the government for no good reason.
Almost everything I write in this newsletter is about helping you to pay MORE taxes, so let me take a minute to share some strategies for paying as little tax as possible per dollar earned.
First, I’m not a CPA or a lawyer, so this is not meant to replace sound advice from either of those professionals.
Second, you may not be in a financial position right now that has you concerned about paying too much taxes. Believe me, I’ve been there and I get it.
But let me tell you, if you focus and bust your butt building your business, the time will come before you know it that you’ll be writing really big checks to the government. The time to plan for that time is now!
Ok, on to some specific strategies:
It’s shocking to me that I even have to say this one, but every time I get into a room with a bunch of you guys and ask the question “How many of you are using an accounting system?”, it’s usually no better than 50% of you.
That’s shockingly irresponsible on your part! Everyone must be using an accounting package!
Because there is no way possible that you are keeping track of all of your deductible business expenses unless you are entering them into an accounting system each day.
The net result is that you are being taxed as if you are making more money that you actually are. Dumb, dumb, dumb!
This is another big no-no that is very common – not incorporating your business.
C-Corps, S-Corps, and LLCs are tools for you to use that have huge advantages related to taxes, personal liability, fund-raising…the list goes on and on.
And each of them have different advantages, some depending on where you live and where your business operates. But they all have benefits.
No serious businessperson would operate without the legal protection and tax benefits of being incorporated. If you are, make a plan to get this done in the next 30 days!
And it doesn’t matter if you are just getting started and have no revenue to speak of…the time to get this done is NOW!
It’s really, really simple. You can either use a service like Incorporate.com, or you can simply file the paperwork with the government yourself. If you just search for “How to incorporate in (state name)”, you’ll find the necessary state government site to do it yourself, with an explanation of how.
Either way, it will cost you a handful of hours and a few hundred dollars (tax deductible!) to get it done.
Talk to your accountant and make sure you understand what can be paid for by your business. You’ll be surprised at how much can be:
Not everything can be deducted 100%, but you should still take full advantage of every allowable deduction.
You should start saving for retirement immediately, even if it’s only a handful of dollars. Getting into the habit of “paying yourself first” – as Sarah covers in this newsletter – is one of the most important things you can do. Failing to save for retirement until way later than you should is a common mistake of entrepreneurs.
Setting aside money for retirement also has tax benefits – usually you can set aside a certain dollar amount each year and not have to pay income taxes on that money now.
There are several different types of plans you can take advantage of: 401K, fixed contribution, and fixed benefit plans. I’m not a retirement specialist…make an appointment with one and get started!
Did you know that you can pay your kids, and then put that money directly into a savings plan for the future? They can be models in some of your marketing materials and charge you, giving you a tax-advantaged way of lowering your profits but keeping money in the family!
Are you still using TurboTax for your annual tax returns? Don’t be silly.
TurboTax, or any other software package, will never be able to understand the subtleties of what can be done to lower your taxes now that you have a business up and running, if for no other reason than it relies on your input to calculate your taxes (and you aren’t a tax master!).
Hire a professional to prepare your tax returns and advise you on the best ways to minimize your taxes.
I could go on and on, but we start to hit diminishing returns. If you are thoughtful about the way you approach the things listed above, you are probably 90% of the way the fully minimizing your tax rate per dollar earned.
Once you’ve done that, focus 100% of your energy on making as much as you possibly can, and send that check to Uncle Sam with a satisfied smile on your face!
Here’s to paying more taxes,
Mike Cooch and the Be A Capitalist Team