Fuel for Thought

'Tis the Season

Well, it is just about that time of the year again. You know, the leaves are turning and beginning to fall from the trees, that cooler air is starting to settle in around the usual places and the seasonal change that occurs every year is upon us. Yes folks, it is almost “end of the year tax deduction” season. That magical time of the year when owner operators try to spend their way out of paying taxes by purchasing deductible items to lessen their tax liabilities.

Since it has been a tough year for many owner operators out there this year, the “buying of deductions" season may be cut short due to under funded accounts, but alas, the upcoming 2023 season will no doubt still occur, even if it is only a smaller crowd this time around.

Every year some owner operators believe that in order to lessen their tax bill for the year it is a good idea to buy unneeded equipment, products or services that can be legitimate deductible expenses to offset their upcoming tax liability. While these purchases may certainly qualify as legitimate deductions, the thought behind them seems very flawed. 

The idea of spending 100% of your revenue to avoid paying 15% - 35% of that same revenue in taxes is absurd. Why spend $50,000 on an unnecessary purchase just to have the deduction? Even at a 35% tax rate, that $50,000 tax liability would be $17,500 owed in taxes. You would still retain $32,500 in your account(s), but make that purchase and you are poorer by 50K, owe less tax and have a piece of equipment you do not need. I guess you could then sell that unneeded piece of equipment, but it will most likely be sold for less as a used item than you paid for it when it was new, thus you lose again.

To me, this is akin to all those people who work on a W-2 and look forward to income tax refunds to buy that new car or tv. It was their money to begin with, why loan it to the government all year, interest free, only to have it returned to you the following year? Why not have your employer make the adjustment to your payroll checks to reflect proper deductions for your household and get as close to $0.00 owed or refunded at the end of the year? Oh yeah, I guess those people require someone else to save it for them or they would have spent it all year long, just like so many do when they receive the big refund check and then go blow it on frivolous purchases.

If you have been holding back from making needed business purchases, this may be the time of year to get those purchases made, the key is whether they are truly needed expenses or just a tax deduction purchase. The former is a smart move and the latter is well, you know, dumb.

As we all continue to tighten our belts in this economy and do our level best to make our business succeed, making smart financial decisions are now more important than ever. It is said that no one likes to pay taxes, this is mostly true. We would all love to keep all that we earn, but taxes are not going away, they are a part of our businesses. I look at it this way, if I owe taxes, I made a profit. I may not like paying the taxes, but I like profits and with profits come taxes. I would rather give $17,500 to Uncle Sam and keep $32,500 in reserves, than spend $50,000 on unnecessary purchases and then need that money later for a legitimate business needed item or repair and not have it.

Continue to make smart money decisions and the tax burden will not seem as much when you are able to retain a higher percentage of the revenue you were able to generate.

I believe that through knowledge and discipline, financial peace is possible for all of us. 

- Dave Ramsey

See you down the road,

Greg