Save Cash Instead of Saving Taxes This Year

  "You can only build wealth with "after tax" income."

- Craig Crabtree

 

From Craig Crabtree, author of "Simple Numbers":

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 it 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? For those of you who are cash basis businesses, you can easily fall into the trap of draining your cash paying off vendors at year end. While this seems enticing, you eventually take it to the illogical extreme and have such a huge amount pushed forward it causes you to make sloppy decisions at year end. Here are just a few of the issues that you could encounter:

• Bank financing - Your year-end financials are more important than ever these days. By focusing on taxes instead of good business fundamentals, you distort your balance sheet at year end and spend the next year explaining why your balance sheet looks bad at December so you can get your line of credit or bonding renewed.
   
• Missed Opportunities - Because you dumped all of your cash in December, it takes longer than you think to build it back in January and February. By not having cash available to start new projects, you delay or miss out on new opportunities. To delay acting on an opportunity wastes a day of potential productivity that can never be recovered.
   
• "Deferring Taxes" versus "Saving Taxes" - Did you really save taxes or did you just defer them? Be honest with your language when you spend your year-end cash. It is not saving taxes unless you are saving at a high rate this year and you pay a lower rate in the future. Not likely to happen. Most entrepreneurs defer taxes at year end and push their rates down into the lower brackets to end up paying at a much higher rate in the future when they have kicked the can as far down the road as they can.
   
• Borrowing money to finance that year end equipment purchase - This is the ultimate tax trap. You borrow $100,000 to buy that new piece of equipment (that could have been delayed) and you end up taking the expensing election on the equipment. Inevitably, this purchase pushes you down into the 20% or lower bracket. The only way to repay debt is to make after-tax profit. To make enough profit to repay the loan, it pushes you into the higher brackets and you end up paying close to 40% tax to generate enough cash flow to get out of debt (if you are lucky). The politicians (and most tax advisors) are not doing you a favor to trap you into this bad decision by calling this a tax break.

Please heed Mr. Crabtree's advice - especially the part about kicking the can down the road. Saving on taxes this year by buying non-essential things or incurring non-essential expenses only costs you more and pushes the inevitable down the road.

Don't make financial decisions about your business or your personal finance based on avoiding taxes. You can't build wealth unless you pay taxes.

 

All the best,

Rick Wallace

Pay Attention

From Steve Chandler:

This I mean to remember: whatever I pay attention to grows. 

That's why they call it "paying" attention, it operates like a money investment. 

If I pay into a certain stock, by investing in that stock more each month, my holdings grow.

If I pay attention to my worries, they grow. I become more worried. 

If I pay attention to my opportunities, they grow. I see more and more and bigger opportunities, because that's what attention does. It grows things. So, if I want more of something (anything) I need to pay more attention into it.

The only thing that would throw me off the road to success is this:  Distraction.

Being distracted all day.....all those things that clamor for my attention! They want my attention....so I don't really pay much of my attention during the day to my major Want in life...why? My attention was called away by other things.  

So the final determination of my success is this: does my attention get called away from me?

Or am I the one directing it?

In the end, that's what decides whether a large success in any area will occur. Who's in charge of my attention?

Another way of seeing this: 

 "The law of your mind is no respecter of persons. The law indicates that what you think, you create. What you feel, you attract. And what you imagine, you become."
- Joseph Murphy

 AND THIS:

 "When I open my eyes in the morning I am not confronted by a world, but by a million possible worlds."
- Colin Wilson

All the best,
Rick Wallace

The Choice

"Whatever you focus on grows."

"Winners focus , losers spray."

- Steve Chandler

A new study by Gazelles reinforces what we all know, but most of the time forget or ignore. Plus, some additional information we were not aware of:

"Executives who have four or fewer priorities on their dashboards in a quarter achieve strong results. But when an executive is loaded down with six or more priorities, only two get done well and the other four or five or more are not completed."

 

In other words, there is a tipping point where it is not just one or two Rocks that don't get done, but we are ineffective across the board because of lack of focus. What is more striking is that we are not aware of which ones will not get done. Thus we are better off narrowing the list down up front and following my favorite saying:

Success = Doing the right things, in small amounts,
over a long period of time.

Choose your Rocks well or fate will choose for you.

Say Yes to No

 "You have to decide what your highest priorities are, and have the courage - pleasantly, smilingly, non-apologetically - to say NO to other things. And the way to do that is by having a bigger YES burning inside."

- Stephen Covey
 

From Steve Chandler:

If I am traveling on a plane to New York today, and I must be at the airport early, it is no problem saying NO when people request my time. Why aren't my own personally chosen priorities my Rocks --- my burning YESes that I declare and write down in the morning --- as strong a reason to say NO?

"Saying No is uncomfortable for a few minutes or an hour, but saying YES can be uncomfortable for weeks, months and even years"

                                    - Greg McKeown, author of Essentialism

In short guys, the only way to reduce the stress and truly follow your path to success is by saying no to things that are not essential and committing to focus on the things that are.