The Art of Tax
April 15 is almost here, and panicky taxpayers across America are begging their tax pros for any help they can get for bills they aren’t ready to pay. “What can I do to pay less?!?” is the plaintive cry going up across the land. TurboTax users are even worse off. Even the $120 version doesn’t give you proactive planning, and certainly not the $40 download.
Some taxpayers may still have one meaningful opportunity to save on last year’s bill. If you run your own business, you have until the April filing deadline, plus extensions, to contribute to an employer-funded retirement plan—a SEP-IRA, profit-sharing plan, or defined benefit plan. And that may be a fine strategy if the employee contributions don’t swallow too much of your up-front savings. Remember, traditional qualified plans don’t truly eliminate tax—they just defer it until you pull the money out tomorrow, when you might actually pay more.
If you really want to pay less, though, you’ll have to turn to the Zhou-era general and philosopher Sun Tzu, who had this to say in The Art of War:
Translated into English, that means, “Every battle is won or lost before it is fought.” Translated into taxes, it means, “Don’t come crying to me on April 15 because you didn’t do your planning back in December!”
Sun Tzu lived and fought in an era when taxes were based on land, not income. But it turns out the wily Chinese general, who died over 2500 years ago, offers surprisingly modern insights for this time of year.
For example, now is when some business owners scramble through old credit card statements and look for whatever receipts they think might look “business-related” to the IRS. Buy a new laptop for your kid to take to school? Hmmm. It’s the business owner’s equivalent of picking up losing tickets at the racetrack to offset that one big winner that comes with a W-2G.
Sun Tzu cautions against bluffing your way into that sort of illegitimate savings: “He will win who knows when to fight and not to fight.” It’s true that audit rates are at historic lows. But you still sign your return under penalty of perjury. “The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.”
Unfortunately, winning the battle against the IRS once isn’t enough. Taxes are an ongoing campaign. Your business and finances will change over time, and tax rules change every day. Your challenge is to keep winning through all of those changes. “Know thyself, know they enemy. A thousand battles, a thousand victories.” A single tax court judge can destroy an entire tax plan with the stroke of a pen. As Sun Tzu says, “Even the finest sword plunged into salt water will eventually rust.”
There’s good news for the battle-weary tax warrior, however. If you pay too much because you failed to plan, you may have lost a battle—but you still have a chance to win the war. “Attack is the secret of defense; defense is the planning of an attack.” Soon, April 15 will be sliding by on our flank, and disappear into the past. That’s when planning season starts—and with us, and Sun Tzu in your army, you’ll subdue your enemy without a fight!