In ancient days, a tax collector was not simply a member of society to be avoided. He was someone that was loathed by everyone but his counterparts and the hierarchy who benefitted from the fruits of his labors. The disdain for this position is well understood. Who enjoys the man that consistently takes from your small pocket what required much hard work and effort to put there?
No more does a well-dressed man come to your door and demand payment to support the lifestyle of a lavish King, but the hurt involved in surrendering a payment through electronic means to support an overcomplicated and bickering government is nonetheless just as real.
After having been through the ordeal of paying your taxes just last month – which was an arduous process of not simply writing a check, but compiling stacks of paperwork, gathering a variety of people and sources together, checking and re-checking numbers, navigating through laws and specifications that are constantly updated or altered, and perhaps shifting finances around to make the required payment – it’s no wonder the phrase “death and taxes” is used to describe unfortunate, but unavoidable, events.
What if taxes could be viewed as a positive process; an investment, even? This may not help lessen the pain points previously described, but it may improve your understanding and appreciation of the return on investment that can come when taxes are paid honestly and fully.
An investment is defined as:
“the action or process of investing money for profit or material result.”
So what kind of “profit” or “material result” can be expected when paying taxes? Without fail, whenever a company seeks to be evaluated for sale, interested parties scour over several years of tax records to get a clear understanding of what the business might be worth to purchase. If taxes were slighted by the provided information being less than honest, the numbers reflected on the return could come back to hurt the value of company at the time of sale.
This does not mean a business owner should not use to their advantage any legal deductions offered, as these may be recast and explained without hurting the overall value of the company. However, greedy, or even misleading, practices to lessen taxes owed beyond the scope of the law automatically lessen the value of the company, as the two are concepts highly correlated.
It’s difficult to devalue what your company is worth to one party (the IRS) and then claim to another party that the true value of your business should be much more. In this way, clear and honest taxes meet the criteria of an investment as they provide a real return by increasing the value of what the company is worth when it is time to sell.
Tax collectors and auditors of our day will most likely never be popular to the general public or business community; they may even receive constant scorn and ridicule in movies and social media. Yet the payment of taxes, in and of itself, certainly has a positive and redeeming purpose for society as a whole and the valuation of your business individually.
In truth, each penny spent in taxes is an illustration of what your company is worth. The cost of stretching a deduction too far may save you a little now, but can potentially cost you much more in a future day not yet visible, when the poster of what your company is really worth (your taxes) will be on display for all interested buyers to see.
The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.
Ronald V. Chernak
Inspiring business relationships since 1982!
(originally posted in the May 2017 newsletter)