That 5 evil letter word ‘Taxes’.

To become a successful entrepreneur, there is so much you need to learn about. Financial planning and taxes is an important part of it. Some new business owners tend to feel they need to spend everything they make by then end of the year to build there business while others feel it is important right from the start to save. Here is a great discussion from the Gopher Lawn Care Business Forum on which method is more important and how your taxes are effected by that decision.

One lawn care business owner wrote “since this is my first year owning a company, I am learning all kinds of neat new things. I have read many lawn care business books and talked to many business owners and everyone has been a great help.

So I have a question about my pending year end. Is it better to end the year with a profit in the bank or is it better to reinvest your profit back into the company, purchasing equipment, advertising, etc, and have a $0.00 balance at the year end?

I have been setting aside money for the sales tax portion, so I have that covered. But which of the above is better for me in the end as it applies to my income taxes? I would like to be able to show a profit at my year end just to be able to show the kind of success I have had. I am not sure of the pro’s and con’s of that view point. I suppose having a profit will cost me money while breaking even won’t. I not really sure at this point but maybe I will be enlighten in the coming days.

The thing I can’t get past in my mind is I would rather put $300.00 toward a new line trimmer at the end of the year instead of giving it to some politician to have a steak dinner!”

A second lawn care business owner said “as an example, say you are in the 30% tax bracket. To make things easy for math purposes, let’s say you have $1,000 profit in the bank. With the $1,000 profit, your taxes would be $300 at 30%.

Come Spring you are going to need money when things finally thaw out again. Knowing that, do you really want to spend $1,000 just so you don’t have to send the government $300?

This is where a lot of people seem to just go wrong. You are in business to make money. If you spend everything you make, then what have you made? What is the point if you can’t build up wealth in your savings? Don’t be so against paying taxes, you get a lot of value out of your tax dollars.

At the end of the year you should have a pretty good idea of what you will need to be paying in taxes. Then after you set aside that amount, if you need tune up parts for equipment and trucks (belts, blades, plugs, filters, brakes, fluids, tools, tires, chains, trimmer line, bearings), it may be better to buy them at the end of the year and get the deduction in a few months rather than buy in spring and wait a year until you get it back. If you need to spend the cash on needed items, spend it, but don’t just do it because you want to avoid taxes.

Sometimes I’ll purchase lawn care equipment at the end of the year that I know I will need next year. My local mulch yard buys a new truck or loader at the end of every year. Spending like that can be a gamble though if business becomes slow. This is why I say get what you need to maintain your equipment now. When spring rolls around you will have everything tuned and ready to go. Ideally you will also have money in the bank to get you through slow times and you will be able to save a little more each year to build up a nest egg.

Your ultimate goal is to build wealth for yourself and you do that each and everyday by putting a little away into your savings.

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