In these times of dire economic predictions, here’s a bold query from someone with a little too much cash on her hands. [And yes, I skipped "B"]
Q.: It seems as though the larger my company gets, the more profit we show and the more money I just hand away to the government. What are the best ways to use profit and avoid giving money to Uncle Sam?
A.: You have a few options at your disposal.
- Earn less money. That way you’ll have less to pay Uncle Sam.
- Cook the books. Like a reverse Enron/Bear Sterns/Madoff–you’re not trying to inflate how you account for profits on the books, you’re trying to deflate how you show profits. On a legitimate note, have a sit-down meeting with your accountant to ensure that you’re properly accounting for all income and expenses and using all of the appropriate deductions you’re entitled to.
- Shift to a cash-only business. The upside: no corroborating records except for what you create. The downside: possible imprisonment for tax fraud and probable loss of customers who are trying to get business deductions based on what they paid you.
- Become a philanthropist. Your company can get a tax deduction for the money it gives away to charity. You won’t see it in your pocket, but Uncle Sam won’t get it, either.
- Win “Employer of the Year.” You could give generous bonuses to your employees. Your company gets the deduction, and the employees get hit with paying the extra tax burden to Uncle Sam (not you). But, like No. 4, you won’t see it in your pocket.
- Lobby your legislators. There’s no question that small businesses are hard-hit from a tax perspective. Speak out on issues–get involved in efforts that seek to lighten the load that small businesses have to carry (especially while they’re busy bailing out big industry).
- Thank your lucky stars. My grandfather used to say that he never regretted paying taxes because it meant he turned a profit. In this economic climate, consider the alternative. Your company could have stagnant earnings or be on the verge of bankruptcy. If, after paying taxes, you’re still left with cash on hand to put into your pocket, call it a good day and be grateful.
3 Responses to “Basic Training 12-26-2008: C is for Creative Accounting”
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December 29th, 2008 at 10:54 pm
I would like to add a little to point number two. With a very good tax CPA, business owners can do a lot to avoid paying tax. Every business owner’s situation will be different, but by focusing on correctly filling the tax buckets of family and close employees around you, you can often save a bundle.
January 9th, 2009 at 10:05 am
Thanks, Ken! (Disclaimer: Ken and I are not related, as far as I know)
You can’t avoid paying taxes once you’ve shown a profit on your bottom line. Minimizing your profits also minimizes the surplus you’re able to pay to yourself as a dividend or bonus. You’re right that a good CPA can certainly help you maximize your (legitimate) deductions and find creative ways to spread the tax burden (see my point #5 — compensating employees generously).
July 4th, 2009 at 5:23 pm
my God, i thought you were going to chip in with some critical insight at the end there, not leave it with ‘we leave it to you to decide’.