Want to Make Millions? Change Your Money Mindset about Paying Taxes
How many of us entrepreneurs started our businesses to pay (more) taxes? I’m guessing none! When tax season comes around, you begrudgingly file your taxes but try to get as much deducted as possible to reduce the taxes you owe. You rack your brain thinking of expenses to include and scrounge for every single receipt to reduce profits – just to keep your taxes low. If this sounds like you, you’re not alone. There’s no denying that nobody likes paying taxes. But did you know that not wanting to pay your taxes may be keeping you from growing and scaling your business?
In this article, I’m sharing why it’s time to change your money mindset about paying taxes – so that you can finally start bringing in the millions you and your business deserve.
Money Mindset Shift: From Getting Tax Refunds to Owing Taxes
Growing up in the US, you might have seen the adults around you receive a big check for a tax refund every year. If you had a job before becoming an entrepreneur, you might have celebrated the annual tax refund deposit too. However, as a self-employed entrepreneur and business owner, your situation is now different.
Instead of being owed tax refunds by the IRS, you now have to set aside a portion of your income to make quarterly estimated tax payments. Especially if you are a first-generation business owner with no prior experience of this, the idea of owing a balance to the government authorities can be unsettling.
The reality is shifting from getting a tax refund to putting in time, energy, and effort into tax planning can be a struggle. It requires a mindset shift to accept that this comes with the territory of being a business owner. Once you start seeing planning for and paying taxes as an integral part of being a business owner, you are on your way to making those millions.
Rich White Men Don’t Pay Taxes, Why Should I?
We see these headlines and wonder – if they can do it, why can’t I? Why do I have to ‘waste’ my money on taxes? Indeed, we may even start to believe that paying low taxes is the reason for their wealth!
This couldn’t be further from the truth. The media is designed to grab our attention, and as such, these sensational headlines don’t tell the whole story. We may skim news reports like these and decide that what we need to do to make millions in our businesses is to avoid paying taxes – like these rich people. Unfortunately, that’s not quite how it works.
The idea that wealthy people don’t pay taxes or pay very little in taxes is false. Thanks to prudent tax planning, they may have set up their wealth in such a way that they are delaying or deferring tax payments, but this is something that they will need to account for in the future. Particularly at the level of the super-rich or people who have achieved billionaire status, their wealth comes from the companies they own, stocks, real estate, or other assets. Their income comes from dividends and capital gains rather than profits, which makes their situation very different from that of an entrepreneur or business owner of a small or medium enterprise.
For those of us with self-employment income from running a profitable business, it is inevitable that we have to pay taxes. Tax planning can help reduce the amount of taxes you need to pay, but ultimately, we do not earn our income in the way that the wealthiest people in the US do. It would be unwise to dedicate our time and energy to trying to avoid paying taxes like them!
Taxes = Profit and Profit is Good!
As a self-employed business owner, when do you have to pay taxes? If you are making above a certain amount of money in your business, you likely have to pay taxes. We can think of taxes as an essential part of running a successful business in the US – it cannot be avoided and it is a sign that your business is successful. If you are serious about taking your business to the next level and building a thriving (multi) million-dollar venture, you cannot avoid taxes. There is no way around it. Besides, the bottom line is paying more taxes means that your business is turning a higher profit. And more profit is always a good thing!
Recording a high profit in your business has many benefits and can help you reach your goals. If you want to buy a car or a house, you may need to get a line of credit or take out a loan. As a self-employed business owner without a steady paycheck, you need to be able to show that your business is profitable. If your business is currently a side hustle and you dream of one day being able to quit your job and be your own boss, you need to have a profitable business. Running a profitable business does not only mean you are paying taxes – it also means you are reaching your goals.
Don’t Let Taxes Block Your Momentum
You may have seen information from other accountants, bookkeepers, and tax specialists about how to avoid paying taxes. While there’s nothing wrong with wanting to save a little on taxes here and there, adopting this strategy for your business could be blocking your momentum and costing you millions.
When you focus on reducing how much you pay in taxes, you may be stopping yourself from making decisions or jumping on opportunities that move your business forward – towards more profit. You may be turning your attention to the wrong thing (avoiding taxes) instead of seeking growth and high profitability for your business.
Here’s an example of what that could look like:
The Small Business Administration (SBA) reports that on average, small business owners have an effective tax rate of about 20%. If you are currently paying $5,000 tax on $25,000 of profit, it can feel like a lot – it’s almost 3 months of your monthly take-home income. When you make $100,000, your tax payable increases to $20,00. This may feel like a huge sum of money if you are currently only making $25,000. However, look at it from the flip side. Making $100,000 in profit means you also take home $80,000. Yes, the amount you have to pay in taxes is much higher, but proportionally, you also have much more disposable income available.
If you get caught in the trap of thinking of how to reduce your taxes from $5,000 you may be missing out on taking opportunities that will help you earn $80,000. This is a money mindset issue and it could be hindering you from growing your business. It could keep you stuck and hold you back if you don’t realize that the profitability of your business is tied to the health of your business. Essentially, having a profitable business is a healthy business.
If you are ready to make millions with your business while paying taxes – and are looking for support in that journey, I am here to help. Go from confused to confident – as an empowered CEO who knows what the numbers in their business mean. Whether it’s setting up the financial foundation of your business, filing taxes (without worrying about paying too much!), or getting your money mindset in shape for some million-dollar success – if you’re ready to lay claim to your business through accounting, then I’m ready to make that happen with you. Book your consultation today!