Expenses or Profit, Which is will you choose? The answer should be easy! Many times advisors concentrate on the Income Statement, emphasizing expenses as a way to reduce net income and taxes. These tactics reduce your income and hence taxes. We port forth the notion that maximizing profit is a noteworthy goal! Yes, one will pay taxes but have a greater income as a result.
Expenses or Profit, Which is will you choose? The answer should be easy!
As with all things financial, one must dig beneath the surface of your financial statements for the facts as well as to evaluate the impact of these recommendations on your year-end.
Many times practice advisors are accountants whose emphasis is on minimizing taxes and finding deductions, not finance. In the corporate world, there is a considerable difference between a CFO, Chief Financial Officer, and a CPA. Accountants and CPA’s emphasize the historical, transactional and tax implications of an entity, while a CFO’s aim is to manage assets to grow profits, share price and dividends for stockholders.
Please know, there is Nothing wrong or incorrect with this, both are critically necessary for accurate decision making, but it is important to understand their perspective so one can be aware of possible bias and blindspot. The blindspot is that all of these tactics are directed at the Income Statement, increasing expenses and reducing net income. Most of you listening to this PodCast have entities organized as either a sole proprietorships, PLLC, PA or Professional corporations, hence all the taxation flows or passes through to the owners, the entity pays no tax!
The net effect of accelerating expenses and depreciation is to reduce your income , plain and simple! With a lower income comes a lower tax bill!! PERIOD!!