The more you spend, the more you save

Ahh… one of the best marketing phrase made famous by the business people of America. We all say it from time to time (perhaps to rationalize our weekend shopping spree) but almost all of us know that it doesn’t make mathematical sense.

You don’t “save” more money by “spending” more (and no, I’d like it very much if we don’t get into the “word” game that I know you all are capable of.) So, why do so many business people believe it when it comes to taxes?

Tax deduction

I cannot recall how many times I’ve gotten answers like these when I asked a client why they made a certain (unconventional) business decision – “well, it’s tax deductible isn’t it?” or “well, I get to deduct it so it’s like it never happened.”

No! It did happen. You’ve just spend X amount of dollar for little or no benefits beyond a few bucks of tax savings (to add insult to injury, the tax savings are almost always a tiny % of the X amount of dollar after all the rules, limits and tax bracket are applied if it is not completely phased out by some other factor.)

Business decisions should be made because the benefit it provides the company is greater (even if beyond monetary measures) than the expense the company incurs. I am 100% for the idea that business owners should be aware of the tax benefits so they can take advantage of them but it should seldom be the deciding factor in a business transaction.

Tax benefits should be an added bonus and nothing more. Making it the deciding factor is like agreeing to pay me $1,000 today so I can give you $100 in a few months to help with your taxes. Now, you wouldn’t do that… or would you? (cause I can be reached at…. just kidding.) Hope everyone is staying dry in this weather.

This is Michael and this is my first post on the new blog. Let me know if you’ve enjoyed it. Happy Sunday 🙂