In my journey towards providing cashflow, freedom and happiness to independent business families, I spent 20 years running an income tax-focused accounting firm in Canada. During this time, I discovered something remarkable – having a substantial tax bill is, surprisingly, a good problem to have. Let’s explore why this is the case and the valuable lessons I learned from working with my clients.
The Two Common Scenarios
At my annual meetings with clients to review their financial results and discuss their tax liabilities, I frequently encountered two scenarios, each with its unique perspective on taxation.
Scenario 1: The Pleasant Surprise
Imagine a business owner who typically paid around $5,000 to $10,000 in income tax annually. This year, their business saw a substantial increase in profits, resulting in a tax bill of, let’s say, $100,000. To my surprise, these clients did not react with frustration or dismay. Instead, they often greeted the news with a smile and a sense of relief. Their response was along the lines of, “That’s good news; I thought it was going to be higher!” They would then promptly write a check to settle the tax bill.
Scenario 2: The Unpleasant Revelation
On the flip side, there were business owners who came to their year-end meetings with a sense of apprehension. They were concerned about how much they would owe in taxes. To their delight, I would often reveal that, due to a lack of profits, they didn’t owe any tax. Their reaction? A sigh of relief, followed by, “I’m so glad to hear that because I don’t have any money!”
The Connection Between Profits and Taxes
These two scenarios may not be formal survey data, but they paint a clear picture. If you don’t have a tax problem, it’s likely because your business didn’t make any money and, consequently, you don’t have any money. On the other hand, if your business experiences substantial profits, you’ll almost certainly have a significant tax bill. However, it’s essential to remember that taxes are only ever a percentage of the profits.
The Key Insight
As a business owner, it’s crucial to shift your focus to making money rather than trying to avoid paying taxes. Striving not to pay taxes may seem like a worthy goal, but if you achieve it, you’ll also find yourself without any money.
Here’s the key insight: making a profit should be your primary objective. When you successfully generate profits, it means you’re on the right track. Your tax bill is simply a reflection of your success, and you’ll also have the corresponding bank balance or increased business value, or even both, to show for it.
In conclusion, a tax problem can indeed be a good thing. It signifies that your business is thriving and profitable. Instead of viewing taxes as a burden, consider them a testament to your success. Embrace the opportunity to contribute to the betterment of society through your tax contributions, and remember that a healthy tax bill is an indicator of a thriving business.
