Our editorial focus this week is CPAs and tax planning — a subject near and dear to my heart. In planning this issue, I was reflecting back over the last 30 years, and from deep within the wellsprings of memory emerged some incidents which I found both amusing and disturbing.
Occasionally, or frequently, CPAs are called upon by their clients to do the impossible — make the tax go away. This usually occurs at the conclusion of a particularly profitable year or as the result of a windfall of income for which the issue of taxability was never considered. Alas, ‘tis human nature.
What is the truth about tax planning? Can one plan away their tax liability? Are there tax maneuvers known only to a select few which will allow bountiful income and no tax?
Let’s start at the beginning.
Ours is a self-assessment tax system which places the burden for computing the tax squarely on the shoulders of the taxpayer. Tax is necessary to fuel the engine of government. Regardless of whether we believe that government uses our money efficiently or not, none of us would want to live anywhere else.
All of these shady deals that promise to eliminate taxes are just that, shady deals. Most require that you take your money “offshore” and simply lie to the U.S. government about your financial doings. Building financial security on a strategy of dishonesty and deceit doesn’t seem very soothing to me. Additionally, you can’t bring the money back into this country without your deception being found out.
What about legitimate tax planning? No problem there. Our convoluted tax law has enough twists and turns that a skillful tax consultant can usually find some legal strategy to reduce your taxes. If your personal situation is much more complicated than a W-2 form and a mortgage interest statement, you need help. The law is much too complex for an amateur.
Many “loopholes” are not government oversight at all, but were placed in the law to encourage us to do something. If we do that thing, we reap the benefits. Tax-deductible retirement contributions, accelerated depreciation on business assets and charitable donations are examples of tax benefits which were enacted to persuade us to do something.
Our attitude toward our tax responsibility says a lot about us. I have known successful folks who pine away hour after hour worrying about their income taxes. They seem to have no hesitation at paying household bills or business expenses but just mention taxes, and they go into a tailspin. I have often wondered how much human productivity is wasted on lamenting taxes rather than being channeled into doing whatever we do for a living.
Let me suggest a better way to handle taxes. If our house payment is $750 a month, it is going to be $750 every month. If our tax rate is 30%, it is going to be 30% no matter what we do other than giving up work and choosing poverty instead. It seems to me that accepting the inevitable has a lot going for it.
An analogy to electricity might be instructive. Wasting electricity is foolish. Turning off appliances not in use is prudent. Once we have minimized our use of electricity, we pay the bill without much ado. None of us would forego the convenience of electricity to save the cost of having it. Likewise, once we have minimized our taxes through legitimate planning, we should simply pay the tax. None of us would forego the benefits of living in the U.S. to save the cost of citizenship.
If you are salaried, be sure that your withholding is sufficient to cover the tax. If you are not salaried, transfer the appropriate amount to a separate tax savings account as soon as the money is received and forget about it. I have followed this strategy for over 30 years and I heartily recommend it.
Minimize your taxes through every legitimate means available. Accept that you must pay that which cannot be planned away. Plan and provide for the payment as you would any other expense. Enjoy life, be happy.
Thought for the Moment
I believe that we are here to do good. It is the responsibility of every human being to aspire to do something worthwhile, to make this world a better place than the one he found. Life is a gift, and if we agree to accept it, we must contribute in return.
— Armand Hammer
industrialist, physician and chairman of Occidental Petroleum
The Mississippi Gulf Coast, from Biloxi to Henderson Point, is the largest and longest man-made beach.
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is email@example.com.
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info