Who Wants to Spend a Dollar to Save 35 Cents?
7 Reasons Tax Deductions Don't Work the Way You Think
Spending a dollar to save 35 cents is just losing 65 cents with extra steps.
But every December, business owners do this.
They scramble to buy things before year-end because their accountant says they’ll owe taxes. They prepay software they don’t need yet. They upgrade equipment that works fine. They buy things they wouldn’t touch at full price, but a 35% discount makes it feel smart.
For example: You spend $10,000 on something your business doesn’t need. You save $3,500 in taxes. You’re still out $6,500 in cash, plus implementation costs, plus the distraction of rolling out a tool your team isn’t ready for, plus a cash flow crunch in Q1.
A simple little strategy
Before you buy anything, ask one question: Would I buy this if it weren’t deductible?
If no, don’t buy it. If yes, buy it because the business needs it, not because it saves taxes.
Meaning, don’t let the tax tail wag the business dog.
Here are seven reasons why this works:
1. A deduction lowers your cost. It doesn’t eliminate it.
Most people think a write-off makes something free.
They hear “just write it off” and think the government pays them back. That’s not how it works. If you’re in a 35% tax bracket and spend $10,000, you save $3,500 in taxes. You’re still out $6,500.
2. Your accountant’s job is to minimizes taxes. If they are good.
If you have an exceptional accountant, he or she will scour to find you deductions.
They don’t question whether you should spend the money in the first place. When they say “buy X for the write-off,” they’re actually saying “spend 65 cents to save 35 cents” and they assume that you know what you are doing.
3. A discount on something you don’t need is still waste.
Here is a crude example: You wouldn’t spend $1,000 on a massage chair at full price, but you’ll spend it for a “tax write-off” even though It’s the same chair and the same money. You just tell yourself a different story.
A 35% discount on something you don’t need is 100% waste.
4. Spending for tax strategy feels smart, but it’s still just spending.
After thinking about why I used to do this, I came to this conclusion:
Spending money feels bad.
Spending for a “tax strategy” feels smart.
But then as I thought about it more, I realized that it’s the same spending with a different story.
The tax code gives you permission to spend. You mistake that permission for a recommendation.
5. December 31st is not a deadline to spend money.
If you are trying to do something on the last day of the year, there is a good chance you didn’t need to do it.
The year-end rush feels strategic because its an annual ritual. But in all fairness it is insanely emotional. You’re making rushed decisions to hit a deadline. Rushed decisions are bad decisions.
6. The order matters.
Try this sequence on for size…
Step one is decide if the business needs it.
Step two is buy it.
Step three is deduct it.
Never reverse the order. If you start with the deduction, you’re optimizing for the wrong thing.
7. You get rich by what you keep, not by what you spend.
Taxes are the biggest drag on wealth creation, but you don’t build wealth by finding ways to spend money before year-end.
You build it by keeping money and investing it back into the business or into a higher return vehicle.
Remember, don’t let the “tax tail” wag the “business dog”.
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Great share, thanks for this 🤙🏼