Everybody hates to pay taxes, but Small Business owners seem to hate it the most. Small businesses will go to great lengths, both legally and illegally to hide their income from the IRS, and thus have a lower tax bill each year. While this may seem ideal for the present, is this practice hamstringing your companies overall goals if you ever go to sell?
If you want to get full market value for your company, a key component is showing a profit. It can’t just be this month or last quarter either, you have to make a commitment 2-3 years before selling your business that you are going to have your books show a profit. This means no longer hiding income or taking “questionable” deductions. As an Attorney, I would say you should never do these things, but everyone knows that they happen. If you will not stop those activities for fear of the IRS, then stop them when you want to sell your business because the added return on that sale will be well worth the additional tax hit you may incur.
on Oct 30th, 2008 at 5:29 pm
I know of a person who was injured in a car accident, but could not be made whole by the lawsuit (other driver’s fault) because she had could not document the income she said she lost. She couldn’t meet her expenses. Same concept. I have had clients who spend so much energy to fit in to a legal tax exemption, they are foreclosed from doing something else that would have benefited their business.
on Oct 30th, 2008 at 5:30 pm
That’s “deduction,” not exemption, in my comment above.