Tax time can tax the nerves
I met with my accountant, Frank, last
week to discuss my 1991 taxes. I usually wait until the last minute, but I
decided to be responsible for once and get it done a week early.
Actually, now that I think about it,
Frank called me. It seemed he had some time on his hands and wanted to
start working on my return. It made me a little nervous to have an
accountant with free time the week before April 15, but Frank simply
claimed he was a victim of the recession.
Quite a few of my clients are cutting
costs by doing their own returns this year," he said. "Our
business is definitely down."
Something about the way he said it
bothered me. I felt he wanted to add, "but weíll be fine after weíre
through billing you." But Iím sure it was just my paranoia peeking
Besides, thereís only so much he can
do to me. I mean, for me. I give him the information, he organizes it,
dumps it in his computer and VOILA, Iím broke.
Itís as simple as that. Perhaps Iíd
be far more eager to complete my return if I ever received a refund, but
owning your own business seems to automatically dictate that April 15 will
be the most miserable day of the year.
Without getting too complicated, Iíll
try and explain what I perceive as the perennial problem.
Itís called short-term debt.
There never seems to be enough cash to
pay both the principal on the debt, which is of course non-deductible, and
taxes. During the year, I quite often have to make the choice of paying
estimated taxes or paying the bank.
The bank always gets the nod. The
decision is based on my desperate rationalization that by the end of the
year some disaster will have struck that will drastically lower my income,
thereby confirming my piddling estimated tax deposits.
Fortunately, that rarely happens.
Unfortunately, the cash needed to pay the taxes that are now due,
including a penalty, has been paid to the bank to pay off short-term debt.
Of course, I can take great solace in
knowing I am building equity in the business. This means that I will be
able, once these short-term debts have been paid down, to borrow more
short-term debt to pay taxes. Then the cycle begins again.
What happens is that I am always one
year behind in paying taxes, always catching up. Iíll borrow short-term
to pay 1991 taxes, pay off debt in1992, then borrow in 1993 to pay 1992
It doesnít seem to get any worse, but
then again, it never seems to improve much, either. Without an outstanding
year to obliterate the debt once and for all, the cycle is destined to
I realize itís a nice problem to
have. The fact that I owe taxes means the business is successful. But what
I need is the Internal Revenue Service to give me one free year of income
so I can get out of this cash rut.
Since thatís not likely to happen, I
told Frank to come up with some creative accounting.
"Creative what?" he asked
when I broached the subject.
"Creative accounting," I
repeated. "There must be some way to get out of this rut."
Frank shrugged. "Double your
"Super advice," I said.
"What do I owe you for your wisdom?"
"Be glad youíre a little person
who pays taxes," he said, "The big people, like Leona Helmsley,
go to jail."
He made his point, but I was still
looking for a tidbit of creativity. True to the accounting profession, I
wasnít going to get it.
By the end of last week, I got the
word. Frank had run the numbers, and as expected, I was faced with a
sizable tax bill, including the dreaded penalty for not making all the
required estimated tax deposits throughout 1991.
"Do you have the cash to cover
it?" asked Frank, concerned that I would go under before paying his
"Iíll find it somehow," I
replied, knowing the answer was renewed debt and also that other
creditors, except the bank, would have to wait to be paid. I made a mental
note to make sure Frankís bill was paid before 1995.
"One other thing," said
Frank. "Donít forget our estimated tax deposits for 1992 or youíll
be hit with another penalty."
"Thanks a lot. Whenís the first
one due? I can never remember."