If you asked a room full of small business owners to raise their hands if they like paying business taxes, you’re probably not going to see very many hands.
However, even if you legally didn’t owe any taxes, there are still a few issues. Have you ever thought about how getting your tax liability to zero could hurt your business?
At CSI Accounting & Payroll, we’ve worked with small business taxes for over 50 years. We hear a lot of concerns about tax liability from prospective clients, especially:
- How can I get my business tax liability to zero?
- What are the problems with owing no taxes?
How to Have No Business Tax Liability
There is really only one way to have no business tax liability; you must show no profit. This is probably not the route you want to take.
We think that owing taxes can be a good thing because it shows the success of your business. However, you can look into tax-reducing strategies and choose the right business structure to keep taxes as low as legally possible.
Problems With Owing No Business Taxes
No taxes means no profits. Here are the consequences of your business showing no profits. If you want to read more, the book Simple Numbers, Straight Talk, Big Profits! by Greg Crabtree also outlines this concept.
Profitability Issues
This is the most obvious point. If your business is not showing any profits, how do you cover your expenses – especially when they are unexpected?
What happens if you get sued? What if a pandemic shuts you down? What if your insurance doesn’t cover a liability?
Taking out loans is not the answer. You should never use debt to operate your business – only to help it grow.
Lowered Reinvestment Opportunity
To expand on the last point, with no profits, you can’t reinvest in your business. (While business loans are a hypothetical option, the following point explains why this is an issue.)
With reduced cash flow, you have limited ability to purchase new equipment, obtain another business, or hire new employees, for example.
Limited Loan Access and Investor Interest
When you need funding for your business, lenders and investors will take a look at your profits. If you have none, good luck!
Banks want to feel confident that they’ll get paid back, and they know you won’t be able to if you don’t make money or have extremely limited cash flow.
Potential partners or shareholders may also become uninterested. They want to feel confident that they’ll get paid back as well, plus much more to make the risk worth it.
Missed Tax Incentives and Strategy
This point is incredibly important. There are plenty of tax credits and deductions that help offset your expenses and improve your cash flow. However, if you don’t owe any taxes, you don’t get to take advantage of them.
Examples of these tax benefits include restaurants with tipped employees receiving tip credits and businesses getting a credit to help offset the expense of installing solar panels.
Remember, with the help of an accountant who works with you year-round (like a monthly accountant), you can use tax strategy to stay in a certain tax bracket, examine your financial structure, and look at other tax incentives.
Don’t Fear Tax Liability
While you may not want to pay taxes, the only legal way around it is to make no money – but you shouldn’t want that!
Now that you know about the problems associated with having no profit and owing no business taxes, are you ready to check out monthly accounting services for year-round tax strategy?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about how a monthly accounting service can help you with a complete, year-round tax strategy.
