The Psychology of Taxes on Entrepreneurs--How to get Small Businesses back on Track

The Psychology of Taxes on Entrepreneurs--How to get Small Businesses Back on Track
As an enrolled agent/accountant (and entrepreneur myself), we have a unique vantage point to observe how entrepreneurs change their decisions based on tax policy. Our focus as a business advisor is making businesses more first, then dealing with the tax implications of profit. As much as we would like to focus on profit, we regularly have to “reprogram” the way entrepreneurs think about taxes. With new clients, we often have to overcome the advice given by their former advisor. We would classify entrepreneurs into three groups when it comes to taxes:

• No Taxes, No Way Nate. This guy will do anything possible, including cheating, to avoid paying taxes. From our experience with clients we turn down or terminate, this problem is likely bigger than even the IRS estimates.

• Accidentally Profitable Alex. This guy is so focused and passionate about his business that he forgets to plan for success, and the resulting taxes often come as a surprise. Many times these occur from a cash-out event rather than ongoing profit.

• Eddie the Enduring Entrepreneur. This is our favorite type of entrepreneur to work with because he is building a lasting business that will be a tremendous wealth-generating engine for himself and his family. This entrepreneur is often held back by bad advisors who encourage him to waste wealth to avoid taxes, but his instinct and common sense frequently help him overcome the faulty counsel.

Contributor: Greg Crabtree - Crabtree, Rowe & Berger, PC, NATP TaxPro Journal, Fall 2011