Every business owner knows the drill; we made a profit this year so we need to spend our cash to save on taxes. I want to challenge you to think differently this year to “save cash” not “save taxes.”
The inherent flaw in spending your cash is that you have to spend a dollar to save 40 cents in tax. Last time I checked, that just seems like a bad idea. Every year, you come up with every excuse to go ahead and spend money that you think you would have spent anyway. You buy new computers, you buy some extra supplies that you always use, buy a new vehicle because you heard you can “write off.”
My argument is that if you did without all of those costs up to December, maybe you did not need to spend it after all! My most successful entrepreneurs spend a dollar at the last possible moment it is needed.
Build Wealth or Save Taxes?
You can only build wealth from “after-tax” income, so every attempt to lower your taxes lowers your ability to create wealth. The number one key performance indicator of wealth creation is “how big of a check did your write to the IRS.” If you did not write a big check, you either cheated or you did not make any money, both are bad. Do not pay more taxes than you should, but you should be focused on building wealth above savings taxes.
What if I am Cash Basis?