Most business owners are greatly concerned with owing taxes.  They are concerned to the point they create fear and anxiety for themselves worrying about it.  Ok, so I agree that no one likes to pay taxes, but there is another way to think about it.  Try thinking about the fact that if you end up owing taxes, you made a profit!! Now that's a good thing, right?  I always advise my clients to think about what all that means for them.  It is not just about paying taxes.

Here is where the Catch 22 comes in, if you have losses, and don't owe taxes, you have a whole other set of potential problems, that can be much worse than owing taxes.  Think about what would happen if you needed a loan, line of credit, financing for equipment or want to sell your business; and you come with a financial statement showing only losses.  What do you think your chances are of getting what you need?  As a business owner, you need to think long term and big picture.  Your goal should be to have a profitable business that provides you a comfortable income and the IRS agrees.  If you have too many years of losses, they could consider your business a hobby and disallow all the deductions you took for your business.  This would mean you would end up owing even more in taxes, penalties and interest.

I know many business owners that try to write off everything under the sun in order to minimize their taxes.  Now, if these are legitimate business expenses, go right ahead.  But if you are trying to write off your wife's spa vacation or you dog's grooming appointment, or your kid's birthday party, you might be headed for trouble.  I am conservative when it comes to business expenses and I encourage my clients to do the same.  Better to do things right and be able to sleep at night than to constantly worry about an audit.

I want my clients to know that if they ever got audited, they would have nothing to worry about, primarily because they took only the deductions they should, they reported all the income they received, because they have good records and because they are doing everything correctly.  I truly believe this is the best way to run a business. 

The other important thing to know is, don't panic if you get an IRS letter.  That is one of the most important things I learned working for CPA's for the last 20 years.  The IRS makes mistakes and sometimes, it is something really minor.  I always advise that if you get a letter, please let your CPA look at it before you do anything.  Don't ever just pay the amount on the notice, unless you know for sure that you owe it.  I often handle IRS letters for my clients, since it was part of my job at the CPA firms and I can usually take care of it for them.

If you have a question about what you can deduct, or on an IRS letter, please let me know, I will help in any way I can.  I would love for you to leave a comment below.  Also, have you subscribed to my blog?  Please click on the Subscribe button so you will get new postings as soon as they are available.  Thanks!