The Tax Man Cometh: Tax Management for Entrepreneurs

There are only two things that are certain in life: death and taxes. How many times have you heard that saying before? Chances are, you’ve heard that statement at least twice in your life. The reason people repeat it so often is because it is the absolute truth. Death and taxes are unavoidable. You have to deal with them. The good news is that taxes don’t have to surprise you or pack a massive and crippling punch. If you own a business, you can manage your business in such a way that you not only minimize your taxes but you also increase your business’ ability to make more money. By pursuing a clear and focused strategy, you can run your business in a way that minimizes the taxman’s take while taking your company to a whole new level. Keep the following in mind.

Begin the Year with Tax Management in Mind

If you want to save on taxes come tax time while working to take your business to a higher level, don’t expect this to happen automatically. Don’t expect this to happen all of a sudden. Least of all, don’t expect to get lucky. It takes serious planning to pull this off. Saving money on taxes doesn’t just happen. Left to themselves, tax authorities will try to saddle you with as many taxes as possible. Don’t be surprised. That is their job. There is, however, a lot you can do about this situation. You can plan your fiscal year with tax reduction in mind. At the start of the year, start with a solid plan. Read the points raised below and add them to your business operations and management plan for the coming year.

Aggressive Spending means substantial tax write-offs

The tax code is structured in such a way that the government only taxes what’s left after a company deducts its expenses from its revenues. So, the more expenses you have, the less adjusted income your company has. Your company is taxed based on what is leftover. If you are serious about saving money on taxes, it is very important that you increase your expenses. This is the core of saving money on taxes while positioning your business for further revenue growth. The less leftover, the fewer taxes you pay because tax authorities follow a graduated system. There is a minimum income level that doesn’t get taxed at all. There’s a higher income level that gets taxed and the rate goes up as your company’s income goes up. This keeps going up until you hit the maximum tax rate. The key to saving money on taxes is to make sure you have a very little leftover. After all, 32% of nothing is, you guessed it, nothing. Keep in mind that this doesn’t mean you don’t make any money. You still make money but you don’t make enough taxable income to get slapped with a high tax rate.

Aggressive Spending can mean greater returns

The upside to aggressive spending is that it can open the door to greater revenues for your business. You are, after all, spending money to invest in key areas of your business. If you invest in the right areas of production, management, or marketing, this can result in higher capacity, higher productivity, or higher sales. All these developments lead to higher revenue. Saving money on taxes by spending aggressively means you can lay the groundwork for higher revenue in the very near future. Of course, you shouldn’t just pick up a pen and your checkbook and start spending away. There is more to saving money on taxes by spending boosts than the realization that you can spend a lot to save a lot of taxes. You have to focus on ROI.

Focus on ROI

ROI or return on investment is all about spending as little money to get as much return as possible. Successful businesses have good ROI rates. Weak or dying companies have very low ROI rates. Since you’re thinking of saving money on taxes by increasing spending that can boost your company’s performance, you have to factor in ROI. There are certain spending decisions that pack better results than others. If you end up spending money on items that have very little impact on your business’ ability to generate revenue, you are basically just saving money on taxes and achieving little else. You are, essentially, wasting money. You have to focus on ROI so you can size up the many different spending and capital outlay options in front of you. Some options are simply much better than others.

Deciding on a strategic spending strategy

It is one thing to think that you want to reduce your taxes by spending on the right items and it is another matter entirely to pull this off. You have to have a solid idea of what parts of your current business can benefit from saving money on taxes through increased spending. Not all areas of your business might be invested in for maximum ROI as far as tax reduction strategies are concerned. Some parts of your business’ operations or components don’t return much even after you pour cash into them. They have reached the point economists call the ‘point of diminishing returns.’ It would be foolish to invest more funds in these areas. You would be pouring money down a rabbit hole. Not a good idea. By focusing on ROI, you can create the following strategy: line up all your options and figure out the areas of your operations that haven’t reached the point of diminishing returns, next project potential revenue gains for each section. Figure out how much you need to spend. Eliminate low ROI elements. Focus on high ROI elements with low to decent outlays. These should be your targets. What follows is a more detailed discussion on the many different sections of your operations that you can examine in finer detail for additional investment.

Why not just dump money into high ROI sections?

If you spend on a categorical basis without breaking each category down into different parts, you might end up spending on areas within the category that don’t need additional investment. You might also end up overlooking areas that can produce solid gains or end up under-investing in them. By breaking each component of your business down into their smallest parts, you can identify opportunities where investments can yield better ROI. Saving money on taxes through increased spending requires tight analysis of your business’ many different sections and their subsections. This allows you to target your spending better. The more targeted your spending, the higher the chance you will achieve your income enhancement objectives.

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