Tweak Your Biz » Finance » Overpaying the Government in Taxes

Overpaying the Government in Taxes

Income taxes are the single largest expense that a small business owner will encounter. This amount is often larger than their home or the cost of getting their kids through college. It is apparent to me that one can never build any real wealth without first getting their income taxes under control.

I am often amazed at the number of business owners looking for ways to reduce expenses. I have seen time and time again many small business owners spending hours fighting over a €200 charge by their credit card company. Yet, they will spend little or no time learning how to reduce their tax burden. And, in many cases the amount could be thousands of euros. So, which amount do you feel is a better investment of your time to save?

There was a study carried last year that stated that Irish small business owners overpaid their income taxes by over 2 million euros. The overpayments were made because the businesses failed to take the tax deductions they were legally entitled to take. Many of these businesses are still unaware of their errors. In talking with many small business owners over the years, I don’t ever remember a single business owner telling me that they got a call from their Inspector of Taxes because they missed taking a deduction. The Revenue is not going to help these businesses by telling them about a tax deduction that they didn’t claim. That’s up to them/you!!

I was recently reading a book by Dr. Stanley titled “The Millionaire Next Door.” This guy did extensive research on millionaires and he concluded that most people who became millionaires didn’t win a lottery, inherit a lot of money, or make a big stock market gain. They were, for the most part, average folks who saved a little bit each year, probably from the taxes saved with good planning, and invested the money in an average investment for 30 or more years.

At first I didn’t believe this so I calculated it for myself. If you were to invest €4,000 for 40 years at an average of 9% return per year, your investment would be worth a whopping 1.6 Million at the end. This means that the small business owner who saves money through good tax planning and invests the savings in a retirement account or other investment can become a millionaire. Tax knowledge is lucrative.

You probably know that tax laws are constantly changing. What makes sense today may not make sense tomorrow. If you have an accountant helping you with this role, they better keep up with the trends! From my experience, many tax and accounting professionals don’t proactively help their clients with tax saving strategies and prefer taking a “back seat” approach. That does not help the small business owner.

For example, when I talk to many new business owners, they are not taking advantage of many important tax reduction strategies like the home office deduction. Many don’t hire their spouse and children to work in their business and hence, miss out on being able to shift income from a higher tax bracket to a lower tax bracket. Others are not sure if they are set up with the best legal structure and overpay the government because it’s been years since their accountant last reviewed their legal structure. Yet others operate with several owners/members and either don’t

The Author:

I help taxpayers and business owners keep more of their hard earned income. Now more than ever, in these uncertain times, you need to protect your cash and pay the minimum amount of tax. Tax season is a nightmare for accountants. Many accountants can barely file their client's returns on time let alone find tax saving deductions.

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  • Quote – “Blame the Government Niall? NO! The fact is that blaming the government is no good, It has achieved nothing. The blame rests squarely as the feet of the Irish nation.”
    Niall – great post (even with hangover)!
    I am impressed with the ability and staying power of the business owner is the crisis of the past 2 years. It will be the SMEs that get this country back on it’s feet – not the Government.
    However, we all have a part to play – each generation in their own right. Young Business execs and entrepreneurs should now look to their grandparents for some much needed direction of how to cope from boom to bust and back to boom (obviously yet to come).
    Entrepreneurs will always look at the bigger picture. They are asking new questions. Unfortunately entrepreneurship isn’t required to become a politician!

  • “Unfortunately entrepreneurship isn’t required to become a politician” and there lies the problem
    “Young Business execs and entrepreneurs should now look to their grandparents for some much needed direction” this is a wonderful steer Elaine and I’m surprised that so few people have mentioned this as part of the ongoing conversation. Great comments, I do like your style 🙂

  • Well it goes back to the old days when we used to look up to and respect our elders – simply because we recognised that they are wise and knowledgeable. Now its more like they get cast on the scrap heap, and their minds are not tapped into.
    We could learn a lot if we open our minds and ears 🙂

  • Thanks for sharing Paddy. When I first got in business, my priority was also to get an accountant that can share with me “tax saving strategies”. Unfortunately they all say they do this but few give you valuable steps to accomplish it. I bet this post will help you get found by people typing in Google “tax saving strategies” 🙂

  • Paddy, I concur with Fred below. I think more accountants have got to learn that sharing advice for free online is a great way to get new/more clients. Well done & great reminder to the rest of us. Thanks, Niall

  • Great Stuff Paddy, I am in full agreement, A little bit of planning , goes a long long way, take the time to stop and think, pay the couple of extra quid at the beggining, do things right first time, and the dividends will come, in all senses of the word, start as you mean to go on, plan in your business where you want to be and as you say how much you would like to be worth when you get where you are going has a lot to do with the path you took on the way, make sure you have the right company structure, and avail of those tax free expenses you are quite rightly entitled to and for the lucky ones with positive cashflow, invest in that pension in a proper way to reap the rewards/benefits and your family have entitlement to the remnants of it into the future etc. If you are worked off your feet paddy, feel free to throw some of it my way (only joking!!) – Garvin

  • Anonymous

    Thanks for the post Paddy. It is amazing how many business owners look at there stationary suppliers, staff costs, phone bills etc to reduce costs and at the same time ignore overpaid government taxes.

  • Hi Paddy – I enjoyed your Bio – true to form about many accountants. Some dont realise that an accountant is NOT a Tax expert.
    Timely advice seeing that I got a reminder recently from ROS that my taxes are due, and I could easily pay them now – YEAH!
    It’s a struggel to keep up to date for small biz owners, as we have so many different areas to think about. Often, October is on top of us, before we realise it, and taxes are filed under pressure, leaving opportunities missed I would think.
    A personal financial advisor said to me once, people put more research and effort when buying a sofa, than they do researching their pensions, I would think this is similar – stressing about stationary costs, and not looking for opportunities in tax savings.

    Could it be that we are conditioned to think that there is NOTHING to gain [back] from the Government, so we have stopped looking?
    Are some biz owners under the illusion that they are getting what they deserve, and don’t bother looking for credits / savings?

    What amuses me, is the information is out there, booklets, SYOB courses, Enterprise Boards, on-line forums, blogs like this one, but biz owners get so caught up IN their business, they forget to work ON their business…

  • Hello all Thanks for the comments Paddy