PEMBROKE, Mass. — Taxes are upon us once again.
It is an annual ritual where we bring our figures to our accountant and the information is assembled. The finished forms are handed to you and you write out checks to the federal and state tax authorities.
It has come to my attention that not all dry cleaners are honest with their figures. Some pull money out of the register. Others bring false figures. Still others pester their accountants to doctor the figures.
I will argue, both from a personal and societal position, why this practice of dishonesty is wrong. Why this doesn’t help you or your business in the long run. And why this is not good for you, personally.
Cheating on one’s taxes is not a popular subject, but it needs to be faced. Avoiding taxes is a practice that has been in play since the beginning of taxation.
Indeed, it could be said that the Revolutionary War was fought over unfair imposition of taxes for tea.
Small business owners who operate largely in cash pocket some of that inflow. A few major corporations avoid U.S. taxes by creating their home base on a foreign land, which has lower tax.
Individuals sometimes don’t report their under-the-table income. Accountants sometimes overstate inventory or other assets to reduce tax liability. But most companies are honest taxpayers.
Why should your business file its true taxes?
VALUE OF COLLECTED FIGURES
Collected figures provide valuable information. They are used to pay taxes, yes, but they are also used to produce information.
They constitute your monthly Profit & Loss (P&L), your specific reports, and your ratios. If you don’t use your correct figures, the information will be corrupted.
Not only the altered figures, but all your figures become less than reliable. You will ultimately depend less on the information in front of you, and more on gut, and that is where you will begin to make mistakes.
To use an example, if you pocket some cash volume every day, or don’t use authentic figures, you will lose track of the proper margin you are operating on.
Your price-cost ratio will be incorrect and your labor ratio will be off. Your direct cost of goods sold will be incorrect. No one can make good decisions with skewed information.
You will lose focus and then your business becomes a vehicle for taking cash, not a legitimate enterprise.
You begin to look for other ways to cheat, rather than focus on the business. Your attention wanders. You are no longer focusing on business basics.
It’s no longer a going business, it’s a spigot for money.
When that respect vanishes, your business will never improve. Instead of a going, growing concern, it becomes a conduit for obtaining money. Without the challenge of building a business, you’ll become just another tired merchant.
It is kind of like the youngster in school who cheats on tests to get better grades. He achieves his goal. But in the process, he’s lost site of the purpose of why he’s there: to learn.
A final reason you should pay your fair taxes is because you’re a person of integrity. You want to be able to look yourself in the mirror, as well as be comfortable talking to anybody about your business.
If you were cheating the government, you would become reticent, afraid, less proud, less open. After all, you never know when you might say the wrong thing to someone.
So avoid that possibility and walk tall. Your attitude should be: I run my business so that it earns a profit. I pay my fair taxes, and I’m proud that I do my share to keep the economy (and country) going.
These are reasons why it is important to pay your taxes honestly. Let’s look at what your taxes pay for.
TAXES AT WORK
Over to the other side of the ledger.
Yes, it is our obligation as citizens to pay taxes, but why? Because we receive benefits.
First, you are allowed to operate a business and to do as well as you can. That is our free enterprise system.
If you lived in China, for instance, you would be extremely limited to what you can do. Initial startup red tape would disillusion all but the bravest.
The greatness of our country is that the opportunity is there to do whatever you want. Anyone can open a business.
Second, we are free. We can do what we want, go where we want, and say what we want, without fear of recrimination.
We can yell out in the middle of a crowded street that the government is full of criminals. If that was done in China, there would be quick punishment.
It’s easy to dismiss this as a benefit because it seems so natural. But if you were deprived of your freedom, you would know its value. Freedom costs, and we must pay for it.
We enjoy a safe society. Despite the occasional incident (rare considering we’re a country of 320 million people), we feel unafraid almost anywhere.
That goes a long way toward doing business, not to mention living one’s life. Consider a country like Israel which has incidents regularly. They live with fear. There is palpable tension in the air.
We don’t have that. Our law enforcement organizations have done a good job keeping the country minimally affected by crime. The privilege of being able to walk anywhere and not fear for our safety is worth paying for.
Just look at television coverage of Iraq or Syria, bombed-out worlds almost beyond description. There is none of that in the United States.
Sure, we are lucky, with two oceans separating us from our enemies, but still we have steered clear of war on our land.
The U.S. has about 800 military bases and 300 embassies in more than 190 countries, which has contributed to our perfect record.
All this costs, and we are happy to support those efforts to ensure continued peace.
Then there is infrastructure. Our roads, highways, public transportation, communication networks and postal service all energize our society. We are better able to operate our businesses.
We can order an item from across the country, and it appears on our doorstep the next day. Not only that, we can check on its progress as the item makes its way across the country.
There is an amazing network of connections that make this possible. Without infrastructure, running a business efficiently would be impossible. Infrastructure is expensive, and we must pay for it.
Our educational system delivers a competent workforce. From this pool, we fill our ranks.
If help came to us uneducated, think how difficult it would be to train a counter staffer to process orders.
It would be hard to find a sharp-thinking manager. At minimum, a high school education is necessary for these positions.
Thanks to all sorts of educational opportunities, we have a ready-made workforce. Education is very expensive and we pay for all the myriad choices through our taxes.
We have all sorts of bureaucratic organizations working for us, for example: the Food and Drug Administration (FDA) ensures that any food we eat is safe. The Occupational Safety and Health Administration (OSHA) recommends practices to keep our workplaces safe. The Department of Education promotes student achievement.
All these are benefits to running our business. We can hire competent individuals who can perform tasks and work safely.
We have a safety net of welfare payments which ensure that our poorest citizens have food, enjoy shelter, and are able to live modestly.
The net result of these programs is that the population stays reasonably content. In other countries such as Brazil, there is such terrible poverty that it casts a pall over society.
We pay for our better society. Which is why you should be honest with your taxes.
To read Part 1, go HERE.