TAXES
Paying more taxes is a good thing! Your total tax percentage is never over 100% and is rarely over 50%. Therefore, for every dollar in taxes you pay, you are almost always making a dollar or more net in your pocket. This idea is obvious to some, but others really seem to believe that making more money is a bad thing.
On the other hand, my tax law professor taught that everyone should take every tax break they can that has a legal foundation.
Many times, business owners do crazy things to avoid paying taxes that ultimately reduce their net income, and often expose them to substantial fines and even prison.
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Here is a great example. Paying employees under the table. The following is not legal advice, but merely business advice about a legal matter. Consult your attorney if you want to seek legal advice in these matters.
Generally, the companies that I know who pay under the table have one of the following reasons:
Employee is not legally in the country and has no social security number
Employee is on some kind of unemployment, disability, or aid that they will lose if paid on the record
The employer wants to escape paying payroll taxes, workers’ compensation, unemployment insurance.
The employee feels they will be paid more under the table
The employee is attempting to avoid spousal and/or child support
Employing someone who has no social security number is a crime. Paying someone under the table so they can keep their welfare or other benefits coming in seems like a nice thing to do but is a criminal act. Failure to pay payroll taxes, workers’ compensation, and unemployment insurance subjects you to substantial penalties and huge liability in the case of an injury on the job.
Helping someone avoid child support is a fraud.
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When you don’t pay into social security for your employees, they will not have reportable income at retirement. This might dramatically reduce their social security income.
If you don’t pay unemployment insurance, they will not get benefits if you lay them off.
Whatever small savings you and your employee are achieving, the potential for fines, penalties, personal liability for injuries, and jail time just isn’t worth it.
Another example would be “spending money foolishly” to reduce taxes. Most foolish expenditures related to eating out and travel have been eliminated by tax law. Therefore, taking a trip as a business expense is only a tax-saving event if, in fact, it is for business purposes. Going out to dinner, likewise. Of course, you can claim the deduction, and you might never get caught. But most tax cheats are cheating all over the return, so getting caught for a “business” vacation, might open the door to hiding revenues, inflating expenses, and other very serious matters.
The last tax law was supposed to simplify returns, and for many it did. However, if you are in business for yourself, you would likely benefit from solid tax advice.
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