Inside Small Business | Small Business & Home Business Marketing

Outside the Box: When to Pay More Taxes

Art Dinkin, CFP

As the April 15^th tax filing deadline approaches, most small business owners and their accountants scurry to find every possible expense and deduction which can lower the tax liability. Most of the time, paying less taxes is good; but not always.

You may want to pay more taxes if…

You plan to sell your business soon – Business valuation is an art unto itself. Every industry and situation is unique. But this much is certain, the more profitable the business, the more it is worth. Most businesses are worth a multiple of profits. Every dollar of bottom line profit may cost as much as 39 cents in taxes but could make the price of the business worth $1.50 to $5.00 more.

You’re seeking financing for your business – Have you ever heard the saying “You have to spend money to make money”? Of course you have. Few people understand better than a small business owner that growing a business requires up front capital. Often, the best way to raise the money is simply to ask your banker. Of course, they will want to see your financial statements. If you told the government that you lost money (or made very little) on your tax return, your banker may not be so likely to open up the vault for you.

Protecting your income – I am a believer in risk management. Part of the process includes identifying the assets you can afford to lose as well as those you can do without. If the asset is expendable, c’est la vie. But if you can’t do without something, insure the heck out of it. For most small business owners their ability to get up, go to work, and build their business is their most valuable asset. No insurance company can underwrite potential, only earnings. Before issuing a disability income policy the insurance company is going to want to see your tax return.

No one wants to pay any more taxes than they have to. But don’t get so focused on the single goal of writing a smaller check to Uncle Sam that you fail to consider what it may cost down the road. When your CPA has completed your tax return, ask for a copy and run it by your financial planner before you file. Working together as a team you can make decisions which give your business the edge you seek.

About the author: Art Dinkin, CFP®, CLU, ChFC is an independent Certified Financial Planner ^TM practitioner in West Des Moines, Iowa who works frequently with small business owners. His ability to explain financial matters so they are understood has been developed through nearly 20 years of experience combined with his classroom skills acquired as adjunct faculty at Des Moines Area Community College. He writes a popular blog on personal finance, Art Dinkin’s Moment on Money.

           

Posted on Tuesday, March 4th, 2008 at 5:32 pm and is filed under Marketing, Money/Finance, Small Business. You can follow any responses to this entry through the RSS 2.0 feed.