Jerry had changed to the firm of Johnson and Johnson about two years ago because his first accountant couldn't seem to cut his tax bill enough. Now Jerry sensed a deja vu and felt a cold sweat developing in the small of his back.
Herbert was well known in town and had come highly recommended. Herbert looked once more over his glasses at the scattered papers before him and then switched his gaze toward Dr. Vandever."Jerry, most of this looks in order. I still need a few 1099s and a copy of the lease you signed with the equipment company in Seattle."
"I'll call around and see if I can get them for you," Jerry said with a hint of hesitation. Jerry was preparing to ask the dreaded question that had really brought him to the accountant. He gulped and then took the yearly plunge.
"Herb am I going to have to come up with more money on April 15th or will I get some money back?"
Herb grabbed last year's file and compared some notes and licked the end of his pencil and jotted some figures down on a yellow legal pad. He deftly pulled a calculator out of nowhere and wrote a figure on the yellow pad and shoved it over to Jerry.
Jerry grew pale. The figure on the yellow pad was considerably more than he had in the bank and Jerry was distraught. He had hoped that he would owe about what he did last year and that his quarterly payment would remain about the same.
Herb sensed Dr. Vandever's alarm and said, "That is only an approximation…I'll know for sure when all the documents are in place."
Disbelief Jerry couldn't believe it. The accounting books always showed that he was making a fair amount of money and he knew that the money that he was taking from the practice wasn't any more than he had been taking out for the last two years. Jerry asked the inevitable question: "Herb, I look at the figures that you give me on a quarterly basis and I just don't understand where this money is."
Herb looked at him and removed his glasses.
"That's what everybody says," Herb lamented.
Herb sighed inaudibly and once again planted his glasses on the end of his nose. He then took about 20 minutes and made an attempt to explain the situation to Jerry. Jerry nodded and seemed to grasp the situation at times but over the 20 minute lesson he would lapse into that same fog that drifted into his gray matter when he had made the mistake of taking a calculus class as a pre-vet student. Jerry did not want to appear stupid so he finally shook Herb's hand and got up and left.
Jerry drove slowly home while his mind raced. He was paying off his home on a regular basis and he had even bought some insurance policies for the kids' college education. Jerry had even thought about buying a boat if there was any extra money this next year. Yet there was nothing in the clinic account to speak of. He realized that there was nothing to pay Uncle Sam within a few months. He could not possibly save enough money to pay both the federal tax and the quarterly payment due at the same time.
Feeling trapped The practice was doing pretty well but a new practice had opened a few miles down the road. In addition, making up the extra dollars before April would be difficult.
What would his wife think? She had been waiting patiently for enough funds to finish the remodeling of the old house that they bought just before he had decided to start his own practice five years ago. Jerry never disclosed anything to his wife, Ginny, about the family finances. She never asked.
He drove on as a fog again descended into his brain. Jerry had just borrowed money a few months ago to pay off some drug bills. For the first time since he started his practice Joe Smothers down at the bank had asked him for another financial statement. Jerry was feeling trapped. Is this the freedom that seemed so promising with ownership of your own business? The sun was shining brightly overhead but for Jerry, it was a very rainy day.
The tax trap Failure to plan is a plan for failure. This is critical when paying taxes.
Taxes, of course, are inevitable. Far too many veterinarians view tax expenses as something to put off for awhile when there is a little more money in the coffers-like avoiding the payment of your least favorite drug bill.
Consider this: I know of no drug company with the clout to audit your business or, in the end, to seize your assets-taxing bodies do. This makes delaying or failure to pay the taxing authorities one of the worst business decisions you can make.
One of the reasons that taxes are difficult to pay is that they require extra time and effort, vary from period to period and they do not arrive in the mail with a figure at the bottom that says "Amount Due." You are the clerk and bookkeeper for the government, like it or not.