Before I tell you the biggest obstacle to small business tax reduction, let me tell you a story.
One foggy night the captain of a large ship saw what appeared to be another ship’s lights approaching in the distance. The two were on a course that would mean a certain head-on collision.
So quickly the captain signaled to the approaching vessel, “Change your course ten degrees west.” The reply came, blinking back through the thickening fog, “You change your course ten degrees east.”
The captain became insulted, pulled rank, and angrily sent a message back: “I’m a sea captain with 35 years experience. Change your course ten degrees west.”
Without hesitation, the signal flashed back, “I’m a seaman, fourth class. You change your course ten degrees east.”
The captain, now becoming enraged, realized that the two ships were rapidly approaching one another, and would certainly crash in a few short minutes. So he sent his final warning: “Now you listen hear. I’m a fifty thousand ton freighter. Change your course ten degrees west – now!”
A simple message came blinking back: “I’m a lighthouse.”
End of story.
Now back to the original question: “As a small business owner, what is your biggest obstacle to paying less tax?”
Whenever I’m asked “How can I reduce taxes?”, I’m always glad to offer an answer packed with potential tax-saving strategies: form a corporation, start a medical reimbursement plan, implement a SIMPLE retirement plan, take the home office deduction, keep track of your mileage, etc., etc., etc.
Of course, the easiest way to paying less tax is to keep better records of the expenses you already have, but have failed to report because of poor bookkeeping.
But lately, I’m wondering if I’m giving the best possible answer to this question. I’m wondering this because of a recent conversation I had with a small business client, who came to me for tax reduction advice.
This man was an ideal candidate for converting his sole proprietorship to a corporation. In about 30 minutes I showed him how he could save over $5,000 in taxes per year by implementing that one strategy of incorporating. His response: “I don’t have the time.”
Yes, it would take some time to implement this strategy. And it would take some time to maintain this strategy. Guess how much? About two hours a month, max.
You do the math. Better yet, I’ll do it for you. If he spends 24 hours a year doing what it takes to maintain a corporation, he’s just made $208.33 per hour at this new part-time “job”.
Hmmm. How many self-employed people can go out and make five grand a year for 24 hours of work? Can you think of any? I sure can’t.
I showed him the numbers I just showed you. His response: “But I don’t want to change the way I do business.”
Ahh, now we’re getting somewhere. Now we just got to the heart of the matter. He finally told me the real reason for his unwillingness to save $5,000/year: he was unwilling to change.
Did you get that?
And this is actually a very common reaction to an effective tax reduction strategy. I’ve seen it many times.
If there is change involved, people are often unwilling to implement tax reduction strategies — it’s too new, too different, too time consuming. Too whatever.
So I’d like to challenge you with this simple question: Are you really willing to make the changes required by an effective tax reduction plan?
All the tax knowledge in the world won’t do you any good without the right attitude toward change. Before pursuing tax reduction strategies, make sure you are ready to change.