Is There Such Thing As Lowering Your Taxes Too Much?

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Accounting for the Accountants Have you ever stepped back to account for all the work accountants do? (Yes, that was intended to be a pun.) These professionals are perhaps best known for their ability to tabulate and file your taxes, but that's actually just a portion of their job. They can also prepare profit-and-loss sheets, give you insight into how your business should spend its money, offer advice for lowering costs, and much more. If you would like to learn more about the work that accountants do, then why not start by reading the articles on this website? They're loaded with useful and interesting information on the topic.

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If you own a business, you probably want to pay as little in taxes as possible. Most people do, and this can be a great idea for the most part. However, some people do take it too far, and it can hurt their business more than it helps. Here's what you should know.

Audits Are Very Expensive

Some business owners take a very aggressive approach to lowering the amount of taxes they have to pay. This might include taking very arguable positions or even outright ignoring the advice of their small business tax accountant. The justification is often that the business owner has never been audited or knows someone else who has done the same thing for years and never been audited.

The problem is that audits happen so infrequently. Like a police speed trap, the auditors know they can't catch everyone all of the time, so they want to deter and punish when they do catch someone. Losing an audit can mean fines and interest on the taxes you should have paid. Once auditors find a problem in one year's taxes, they usually look at others and watch you more closely in the future. 

Write-Offs Aren't Free Money

Another thing to watch out for is spending money just because you can write it off on your taxes. Even if it is something that you can properly deduct, the numbers just don't add up. A deduction reduces your income, not your taxes. If you want to write something off that costs $1,000, you don't pay $1,000 less in taxes. Your income is lower by $1,000, and if your tax rate were 25%, your taxes would be lower by $250. You're still $750 behind if that wasn't a necessary expense.

You Want to Make More Money

Yes, it can hurt that the government takes a higher percentage of your income the more you make. However, you shouldn't reduce your own earnings because you want to spite the government. Except for rare situations where you might no longer qualify for a special tax credit, increasing your profits makes more money for both you and the government. Almost all of the time, even if you only get to keep 70 cents of your extra dollar instead of 80 cents, you still have an extra 70 cents in your pocket.

To learn more about the right strategy for your taxes, talk to a local small business tax accountant today.

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