Tuesday, March 31, 2015

Taxes Are Great!!

There is a famous similarity between death and taxes, but it's the wrong one. Yes, they are both inevitable, but what really unites them is the anxiety that surrounds that inevitability. After all, we only die once, but pay taxes every year. Death at least has the virtue of being final.

As a business owner, I have no taxes, state or federal, withheld from my pay. Instead, I must write a check each and every month for what I "estimate" that I owe. This is over and above both my employee and employer Social Security taxes. Actually, I don't even write a check, rather, I make sure that the amount I owe is in my business account on the 15th of each month for the Feds and the 25th of the month for the State of Virginia, because that's when the eagle swoops in and takes via something called an "automatic debit transaction."

The hard part is the estimating. Basically, it works this way. You start with what you paid last year, then you compare your income from last year and compare it to this year and make adjustments accordingly. Seems straight forward enough on paper. The problem is that it never seems to work out how it's supposed to. No matter how much I pay during the year, I always have to pay more on April 15. It's like an intransigent, immutable law of physics. Of course, the fickle nature of business also plays no small roll in my tax-paying difficulties since cash flow is about the most cruel feature of any enterprise. What happens if the 15th rolls around and nothing is shaking in the receipt ledger? The IRS doesn't care about my cash flow difficulties, all they know is it's the 15th and they are hungry.

To aid me in my tax dealings, I employ an accountant. He has prepared my tax returns for over thirty years now. He knows more about my financial life than anyone on earth, including me. If he were to suddenly die of a heart attack, I would be lost. I give him all of my records in February every year and then the waiting begins. Sometime in early April, my tax return arrives via FEDEX weighing in at close to two pounds. My hands tremble as I pull the little rip chord thing at the top of the package. At the top of the pile is a cover letter which starts, "Doug, please find your 2014 tax returns enclosed. Sign the e-file authorization and fax it back to my office. Make a check payable to the U.S. Treasury in the amount of....."

Each year my heart sinks as I read the number. Each year I can't believe it. I was so careful this year, how could I possibly owe this much? For a minute I think that there must be some mistake, but there never is. He's right, my accountant. So, I write the check. Sometimes, I first have to take an advance from my line of credit, THEN pay the tax, but it always gets paid. Then I find his bill for professional services further down in the pile of forms. I pay that too.

Years ago, I used to get angry. I used to feel put upon having to write such ridiculous checks. I would rail against government waste and corruption being at the root of this unfair shakedown. But ultimately, that way lies madness. Our Rube Goldburg tax system simply is what it is, and whining about it is wasted energy. So instead, several years ago I changed my thinking. What if I turned this horrible negative into a positive? Suppose I made it my goal each and every year to pay MORE in taxes than I had the year before? After all, if my tax obligations are rising every year, there's a good chance that my income is as well. Success is the greatest revenge, I'm told. 

Yes, yes it is.