We’ve all heard it before, comparison steals joy! In this era where everyone is connected via social media, it’s easy to get sucked into what everyone else is doing and consciously or unconsciously compare your life to everyone else’s.
It’s also easy when we attend conferences, networking events or mastermind groups with our peers to get sucked into comparing businesses. Sometimes it’s vanity metrics such as number of members, size of staff, social media followers or revenue. Other times the conversation turns to taxes.
For so many reasons, when it comes to taxes, comparison just doesn’t work. This is one instance where you are a snowflake – every single tax story (return) is slightly different.
You may have friends in the same business as you and their life partner may have a completely different job from your life partner. This could create a massive tax difference. You may work the same job as someone else and have very different investment strategies. You may own your house and someone else rents. The list goes on and on. There are so many ways you may look the same in everyday life and yet be very different on your actual tax return.
This is one reason comparison just doesn’t work – you probably only know the parts of the story that are the same or obviously different. The seemingly small differences can produce the largest differences in paying taxes.
Another reason is people may have the exact same day-to-day characteristics but the details can still create wide gaps. In other words, people usually only tell you the good stuff so that’s what you’re comparing. Except you’re comparing your good, bad AND ugly to their good. That’s not fair to your psyche.
For example, if another gym owner tells you he’s been advised to save 10% for taxes and you’ve only been advised to save 7% that may mean he’s more profitable than you OR it may mean you have more personal deductions that him.
It’s also important to be sure you’re comparing apples to apples. Maybe he’s been told 10% of Gross Income and you’re at 7% of Real Revenue. That may mean you’re actually saving more for taxes because you calculate it on all your Revenue where he’s taking out his Cost of Goods Sold first. See, the details matter!
Now let’s reverse the above example…she’s only savings 5% and you’re still at 7%. Maybe she isn’t paying herself as much as you because her operating expenses are still too high. I’d rather have more profit and owner’s pay and have to save more for taxes than be living check to check in my owner’s compensation account. OR she could have a life partner with an extremely stressful although lucrative job with lots of withholding covering her business tax requirements.
See how you can’t know the whole story so comparing is stealing your joy. This may be good news or bad news for you. The only way to know for sure is to visit your tax preparer and find out.
This time of year, early fall, is the best time to make an appointment with your tax preparer and ensure your 2019 tax estimates are on track to cover your 2019 tax liability based on your actual 2019 financial results. If you need to make changes, you still have time and if you’re on track, you can rest in that peace the rest of the year as it winds down.
If you don’t have a tax preparer you’re happy with, email us at email@example.com and we can introduce you to one.