Question: Keith in Iowa runs a small business, and he wants to know how to avoid paying taxes. He also wants to know if Dave would recommend taking out a loan to buy expensive equipment. Dave says there is no way around paying taxes, and he would never recommend taking out a loan.
Answer: You can’t do that. Why can you not just save money after taxes? If you want to buy a piece of equipment and put $100,000 down on it, that is taxable anyway because the equipment can’t be expensed in one year; it has to be depreciated.
I’m not going to teach you to borrow money, and I don’t borrow money. We are a sub-S corporation, and I have to pay the taxes and save up to pay cash for stuff. The other option is to put my business and my whole well-being at risk and go completely bankrupt if this equipment doesn’t work out. Risk is the key word there, and Proverbs 22:7 says the borrower is slave to the lender. I don’t borrow money because I don’t want to be a slave to anybody but Jesus.
What you are doing increases risk, and you are also increasing your expenses for owning the equipment because you are now paying interest on it as well. And you are going to pay the taxes; it’s just a matter of when. Because when you depreciate the equipment and then the equipment is sold, you’ve got a tax.
At some point, some way, someday, this creates a taxable event. You don’t avoid the taxes. It’s just a matter of when you pay them. I just go slow and pay cash, and then when 2008 happens all over again, I don’t go out of business. You are a farmer, and farming is a business that is like home building or owning a car lot. Debt has been so normalized that for you to even consider what I’m saying is so radical it’s hard for you to hear it.
If you buy a $400,000 combine and you are a farmer, that’s where you’re able to write it off. Most of us in business don’t have that. That’s a farming cutout in the tax code.