Running your Business – Doing your Taxes

Posted on August 25, 2021 by Guy Atkinson

There is a great deal of misunderstanding concerning the subject of taxes and business financing. The term “taxes” is often used interchangeably with “finance,” but in fact, taxes are a specific revenue-raising tool that a government may use to raise money for its expenses and to supplement revenues that have fallen short. Finance is the more straightforward term, referring to the way in which money is invested or allocated for the purpose of raising funds for a company. Business taxation is a completely different concept, dealing with the profitability of that company in a given year and determining what, if any, tax payments are needed. (For example, a company may be required to pay a tax on its income if it makes less than specified in its annual budget.)

The general function of the tax system is to secure the interest of both public authorities and private citizens by ensuring that tax liabilities are properly paid. This responsibility is further compounded by the fact that tax law is subject to statutory law. That is, in most states, laws regulating the tax regime are enacted by state legislators. Statutory laws can change at any time, making it difficult if not impossible to keep track of all the changes. As a result, many small businesses find themselves suddenly and unexpectedly subjected to new tax rules and legislation, even when they are not making profits.

Taxes finance business opportunities exist when a company realizes that it has untapped sources of financing that it could tap into if it were willing to invest the time and effort in developing those sources. A prime example of such a resource is a profitable business that utilizes some technological innovation. By applying the knowledge of the company founder and its employees, the innovative business can attract private investors that could fund the business. Such funding would not only provide a significant source of cash Flow but it would also provide equity capital, which is needed in some companies to allow the owners to receive dividends. These benefits are particularly important in growing companies, since initial public offerings (or IPOs) are typically accompanied by heavy debt obligations.

Private financing is especially important for start-ups, since they face tough times as they seek to build their business. In most cases, start-ups need money to hire employees, get licenses and get established in their specific industry. Without the assistance of investors or other third-party sources of funds, many small businesses find themselves stuck in a highly negative cash position, with little to no chance of turning a profit. While there are a number of avenues available to a business owner seeking to raise capital, it is often advisable for them to turn to the tax law, since most tax professionals consider financing provided by the Internal Revenue Service to be a tax-deductible expense.

Business owners seeking to take advantage of the tax incentives that are offered through state and federal programs should contact their state or county finance departments. Each jurisdiction has its own unique rules and regulations regarding the tax-exempt bond market. Since many tax finance business opportunities require an investment of money that is taxable, it is essential that the business owner understand and comply with his or her state’s tax laws. Many states have passed comprehensive, proactive laws that provide substantial tax relief to business owners seeking to finance their ventures. While the exact tax advantages that a business owner may receive will vary from state to state, there is a general consensus among tax professionals that investing in a business is a sound financial decision.

Individuals who have not had any involvement with a business or are unfamiliar with how a business operates can also qualify for a business finance loan. Typically, these loans are easier to obtain than a personal loan because they do not require a business plan, down payment or collateral. For qualified borrowers, interest rates are very competitive and there are usually no fees or penalties for early payments. If you are interested in exploring the possibility of securing a business finance loan, there are a number of excellent sources that can offer advice and guidance to individuals of all business backgrounds and experience levels.

Tip of the Day

Time management for Finance Professionals

time management

 

I’ve just re-read Richard Denny’s fantastic book ‘Selling to Win’, in which he mentions a time management technique that I learnt many, many years ago from an old boss of mine.

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