When tragedy struck in February 2006 and my partner died in a plane crash, my world turned upside down. In the fog of grief and the chaos of rebuilding my life, I made a costly mistake that many entrepreneurs make: I blindly trusted my CPA to handle my taxes without reviewing them myself. That mistake cost me $41,930 in overpaid taxes.
As an entrepreneur who became a multimillionaire by age 26, I should have known better. But grief can cloud even the sharpest minds. When the fog finally lifted and I reread my tax return with fresh eyes, I was shocked at what I found.
Discovering Hidden Tax Savings
My review revealed multiple areas where I was overpaying. I reclassified income to pass-upon distributions, captured R&D credits under Section 199, and identified missed deductions from my home office. I even found that my SUV qualified for Section 179 deductions, and that my pool maintenance was deductible since I had opened it to employees under Section 132(j).
After filing an amended return, the check arrived. The following year, I recovered another $91,000. In total, I got back over $130,000 that was rightfully mine – money that would have otherwise remained with the government.
This experience made me wonder: How many other entrepreneurs are overpaying? To find out, I conducted a three-month experiment examining the tax returns of more than 200 entrepreneurs. The results were staggering.
The $22,860 Problem Most Entrepreneurs Don’t Know They Have
My research revealed that the average entrepreneur overpays $22,860 in taxes annually. Think about that for a moment. You wouldn’t leave $20 on the sidewalk, so why leave nearly $23,000 with the government?
The problem isn’t that entrepreneurs want to pay more taxes. It’s that most of us:
- Trust our CPAs without verification
- Don’t understand tax code well enough to spot missed opportunities
- Are too busy running our businesses to thoroughly review our returns
- Don’t know which questions to ask our tax professionals
Many tax professionals take a conservative approach to avoid audits, but this can cost you thousands in legitimate deductions. Others simply miss opportunities because they don’t fully understand your business operations.
Common Areas Where Entrepreneurs Overpay
Based on my research and personal experience, here are the most common areas where entrepreneurs leave money on the table:
- Income classification (salary vs. distributions)
- Research and development credits (Section 199)
- Home office deductions
- Vehicle deductions (Section 179)
- Business use of personal property
Each of these areas requires specific documentation and proper classification, but the savings can be substantial. For example, properly classifying income as distributions rather than salary can save thousands in self-employment taxes alone.
Taking Control of Your Tax Strategy
The key lesson I learned through this experience is that no one cares about your money as much as you do. While tax professionals provide valuable expertise, the final responsibility for reviewing your return lies with you.
I now recommend that all entrepreneurs develop at least a basic understanding of tax strategy and review their returns carefully before filing. Ask questions about deductions you think you might qualify for, and don’t be afraid to get a second opinion if something doesn’t seem right.
Remember: Tax avoidance (legally minimizing your tax burden) is completely different from tax evasion (illegally not paying taxes). You have every right to structure your affairs to pay the minimum amount legally required.
The government won’t send you a letter saying you’ve overpaid and deserve a refund. It’s up to you to identify these opportunities and claim what’s rightfully yours.
Stop tipping the government and keep what’s yours. Review past returns, educate yourself on tax strategies relevant to your business, and work with tax professionals who proactively look for ways to reduce your tax burden legally. Your future self (and bank account) will thank you.
