Spitting taxes

guest commentary by David Potts

Writing a check made payable to the U.S. Treasury, for me, is an extremely personal act. An act more personal than the thought of a colonoscopy. The reason I say “more personal than the thought of a colonoscopy” is that I have been able to refuse the colonoscopy, however unwise that may be, without threat of incarceration.

But when it comes to paying income taxes, several times each year I “voluntarily” write a check payable to the U.S. Treasury. When I think how much of my tax dollar is spent for political payback on behalf of our elected officials, our “leaders.” or for causes that I oppose to the exclusion of investment in infrastructure or research and development that benefits the United States for decades to come, I want to spit.

The only defense I have to legally reduce my income tax payments is to plan; to look ahead and choose whatever options are available in the Internal Revenue Code that provide the greatest benefit to me.

After the tax year ends choices to alter my tax liability are very limited, as they are for everybody. The best choices are made before the tax year ends. With only three months until the year ends it time for wise business folk to review their current income tax situation and make choices for their benefit, even if your business is losing money this year.

Where do you start? First you need time. If you are like me, you are busy taking care of customers, clients, or patients, you are over committed, and you have a family in which you need to participate. But I will wager that the time and cost spent planning to reduce your income taxes will yield tax savings far in excess of your cost.

Second, you need to know where you are, tax wise. You need to project your taxable income through the end of this year. You need to know what your expected current year tax liability and your incremental tax bracket or tax rate to determine the tax effect of your available choices.

Next, you need to know what choices might be available to you to alter your tax liability. That’s where I can help. Over the next few weeks I will write about the more common tax choices you have available as a business owner or professional that might provide you a tax advantage.

Finally, you will have to decide what choices you need to make and act on them. Until then meditate or contemplate on this famous quote related to paying income tax and income tax planning. It was written by Judge Learned Hand, U.S. Court of Appeals in the 1935 case Gregory v. Helvering. It should in the Bible.

Judge Hand noted: "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

Amen!

About Potts
David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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