Why Are You Paying Taxes On Make-Believe Profits?

Juggling payables, not taking a paycheck, pumping money into the business and the tax return shows make-believe profits? Are you serious? I see this constantly, a tax return that shows a profit and thus taxes paid, yet the owner has not taken a paycheck for a year or more and has pumped in tens of thousands of dollars out of his savings or his 401k or wherever he can borrow it from. It makes no sense to me at all.

I ask so many business owners how this could be and they all say the same thing, “I dunno, my accountant told me that’s the way it is.” I say, fire your a accountant, that’s not the way it is. Let’s not be ridiculous!

If you are putting cash in to operate and you are not taking any out as a paycheck, your business is obviously not operating profitably! Yet, you show a profit and pay a tax on it? Are you nuts? Why would you ever let your accountant do that to you? Why would an accountant ever do that to his client? If you want to take the paycheck and reinvest it, so you declare the expense and then a loan in, that makes sense and that could eliminate the tax as well as be a better description of your business. Why not? In fact, were you to do it that way, you could take payments back on the loan you put in without incurring tax deductions as if it were payroll. That makes sense also.

What I don’t understand is why an accountant wouldn’t help his client win instead of lose in such a situation. What gratification does an accountant get by allowing his client to pay taxes when in fact he should not? I really do not get it but I see it every week, a hundred times a year. I ask the same question over and over: WHY? It makes no sense and out of blind trust without challenging the logic, without asking your accountant why, business owners are paying taxes on “profits” while they do not take a check and continue to subsidize the business. I scratch my head in bewilderment that the owner – you, the man in charge – is not asking this question.

Enough I say, this must stop. You must ask why when it makes no sense! You must challenge your accountants when you know deep inside this is wrong. Then, fire them and get a new accountant, one who understand that their job is to advise you appropriately.