No Taxes Nate, Accidentally Profitable Alex, or Eddie the Enduring Entrepreneur
By Greg Crabtree
I would classify entrepreneurs into three groups when it comes to taxes:
1. No Taxes, No Way Nate – This guy will do anything possible, including cheating, to pay no taxes. From our experience with clients we turn down or terminate, this problem is likely bigger than even the IRS estimates.
2. Accidentally Profitable Alex – This guy is so focused and passionate about his business, that he forgets to plan for success, and the resulting taxes often come as a surprise. Many times, this is from a cash out event rather than ongoing profit.
3. Eddie the Enduring Entrepreneur – This is my favorite type of entrepreneur to work with, because he is building a lasting business that will be a tremendous wealth-generating engine for himself and his family. This entrepreneur is often held back by bad advisors who encourage him to waste wealth to avoid taxes, but his instinct and common sense frequently help him overcome the faulty counsel.
Outcomes for Each Tax Group
The only type of tax that you can make No Taxes Nate pay would be a sales tax (or VAT – value added tax). But given Nate’s predisposition to not pay any taxes, he will find a way to skim or avoid the tax all together. Unfortunately for us honest entrepreneurs, we will endure audits because of Nate, since that is the only way the tax collector can find him.
Accidentally Profitable Alex does not make decisions based on taxes until his first major tax event occurs. Once that event happens, he may change his name to Nate if he perceives the tax impact is too great. Alex is likely to be a “one’er,” which is the term used for someone who can be profitable once, but cannot repeat the success.
Eddie is the guy we should focus tax policy around, because he is the guy that employs the bulk of the workers in the U.S. economy. Employment studies have shown that 70% of all employees are employed by privately-held businesses and 100% of all new job growth comes from private business. Publicly-held businesses kill as many jobs as they create, and that is just the nature of the beast. Every time a publicly-held business has purchased one of my clients, the public business has decreased employment of the company purchased, not increased. They are inherently geared toward buying the “business” done by the private company, bolting it on to their infrastructure, and off-loading the private company’s management. HBM
