Be Thankful for Paying Taxes?

I had a tough conversation with some clients today. We were going over their tax bill for the upcoming tax year filing and as it turns out, they are going to owe six figures in tax this year.

That is not an easy idea to wrap your head around. And it comes as a huge shock after paying less than $10K last year.

And it’s easy to let yourself get angry about all the hard work that went into making that money just to turn around and pay it out again. It feels somehow unfair and disproportionate. You start to think about stats you’ve heard that 50% of Americans pay no income tax at all and receive far more benefits than they pay in to the government.

I get it. I’ve been through it myself.

But here’s what I told them and what I tell every client who feels like they are paying too much in taxes.

Under the US system, you only pay taxes if you’re making money. And you only pay higher tax rates on the higher amounts that you make. So if you’re paying a six figure tax bill it’s because you made what, by any objective measure, is a ton of money.

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Now someone who is good at living at or above their means may even feel that making seven figures barely keeps them going paycheck to paycheck. But that is not the fault of the tax system, that’s a choice they made and can unmake if they choose.

What I say and the way I focus on this personally is I spend a few days a year making sure that I have done everything I can do to legally minimize my tax bill using whatever means the IRS and state give me to do so.

And that is what we do for our clients- make sure we can help them take advantage of every avenue they can to bring down their tax bill. They don’t even have to spend more than a few hours on it and we’ll do the rest.

What to Focus on Instead

But then after that’s been done, then thinking any more about taxes no longer adds any value. You as an individual can do nothing to change the rules. Being mad about it or continuing to try and “beat the system” is a waste of time and doesn’t take you in the right direction.

And thinking about how “the super-rich” can get by paying “no tax” and wondering how they do it and what “secrets” they know is a waste of time because there are no secrets, there are simply different strategies at different levels you can use as they make sense for where you are at.

We’ll bring them up as you qualify for these different options or refer you to someone who can help with some of these if you’re so large that we can no longer help with everything (net income of $5M-$7M and up).

So if you’re paying a big tax bill try to be thankful. Not that you owe a lot but because it means you are doing well- better than most and maybe even in the top 5% or top 1% depending on how big that bill is. That’s quite an accomplishment. And you’re still keeping the lion’s share of the money you made.

Nearly anyone paying a fraction of what you’re paying would be happy to change places with you on the business you own because making $500K profit and paying $100K in taxes is clearly better than making $75K in profit and paying $8K in taxes.

What does all this mean for you? It means, in my opinion at least, that the way to spend the 364 days you’re not thinking about lowering taxes should be spent thinking about how to grow your business. This will mean paying more in taxes. But it also means keeping more, being able to save and invest more, and having a much more valuable business to sell down the road. Growing the business means a secure, even early retirement and the financial security to provide for your family now and future generations.

Focusing on paying less is how exactly no one ever got rich. The most you can cut taxes to is zero. But cutting isn’t what builds wealth- growing is what does that. As you grow you can pay advisors to help make sure you pay as little as possible but only you can do the growth part.

So stop worrying that you owe, instead be thankful that you’ve been successful enough to owe and instead wish that you owe even more next year because it would mean that your business and your net worth grew that much more!