{"id":1393,"date":"2019-05-26T14:11:55","date_gmt":"2019-05-26T14:11:55","guid":{"rendered":"https:\/\/wcginc.com\/?p=1393"},"modified":"2026-01-26T16:37:04","modified_gmt":"2026-01-26T16:37:04","slug":"minimize-tax-maximize-value","status":"publish","type":"post","link":"https:\/\/wcginc.com\/blog\/minimize-tax-maximize-value\/","title":{"rendered":"Minimize Tax or Maximize Value"},"content":{"rendered":"<div class=\"wpb-content-wrapper\"><p>[vc_row][vc_column]\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-68b592ec5f913\" class=\" wd-rs-68b592ec5f913 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><\/p>\n<div class=\"overview\">\n<h2><span class=\"ez-toc-section\" id=\"Key_Takeaways\"><\/span>Key Takeaways<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li><b>Focus on Wealth, Not Just Taxes:<\/b> Prioritize building business value first; tax savings are secondary.<\/li>\n<li><b>Lending Considerations:<\/b> Excessive personal expenses claimed as business deductions can reduce taxable income but may hurt perceived creditworthiness when seeking loans.<\/li>\n<li><b>Selling a Business:<\/b> Buyers and appraisers focus on <b>Seller\u2019s Discretionary Cash Flow (SDCF)<\/b>, which may add back personal expenses, depreciation, and officer perks to determine true economic benefit.<\/li>\n<li><b>Reclassifying Expenses:<\/b> Over-adjusting tax deductions as personal expenses can reduce credibility with buyers and lenders.<\/li>\n<li><b>Balancing Act:<\/b> Minimizing taxes too aggressively can conflict with maximizing business value for lending or sale purposes.<\/li>\n<\/ul>\n<\/div>\n<p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-673315629c877\" class=\" wd-rs-673315629c877 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title img-right \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p><img decoding=\"async\" class=\"alignnone size-medium wp-image-23697\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/rave-300x183.jpg\" alt=\"\" width=\"300\" height=\"183\" srcset=\"https:\/\/wcginc.com\/wp-content\/uploads\/rave-300x183.jpg 300w, https:\/\/wcginc.com\/wp-content\/uploads\/rave.jpg 328w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/>As mentioned elsewhere in our website and book, we encourage people to focus on building wealth and if they can save taxes along the way, then that is just icing on the cake. What do we mean here? Often we see business owners who want to minimize their tax obligation rather than maximizing their business value, and this can be problematic in two areas; lending and selling.<\/p>\n<p>Lending is more straightforward so we will tackle that first. If you are prone to pump a lot of personal expenses such as cars, computers, business trips that have a huge personal component, and other deductions through your business, your taxable income will be decreased. So, when the IRS shakes you down, you calmly say, \u201call these deductions have a business purpose and are considered ordinary and necessary.\u201d Then you go visit the bank, and you calmly say to the lender, \u201call these deductions really aren\u2019t business related and as such they shouldn\u2019t affect my credit worthiness or ability to pay a loan.\u201d<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-6890ddfde94f9\" class=\" wd-rs-6890ddfde94f9 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><p>Can you see the pickle you are in between minimizing tax and maximizing value?<\/p>\n<p><img decoding=\"async\" class=\"alignnone size-full wp-image-26120\" src=\"https:\/\/wcginc.com\/wp-content\/uploads\/tax-value-1.jpg\" alt=\"\" width=\"300\" height=\"200\" \/>Selling a business is slightly different. To determine the value of a business, most valuations need to determine seller\u2019s discretionary cash flow (SDCF) which is also considered the economic benefit. One technique is to start with taxable income, and make adjustments such as adding back interest expense, depreciation and amortization. Officer compensation and perquisites (the fancy word for perks) are also checked for reasonableness; so if personal expenses are being rifled through the business, these expenses are added back as well to increase SDCF. There are other adjustments as well but these are the biggies.<\/p>\n<p>But it gets sticky again when the seller provides a general ledger of all his or her transactions, and starts highlighting a ton of stuff \u201creversing\u201d tax deductions and reclassifying them as personal expenses. A few things here and there are fine, but if there are several material adjustments to SDCF at the request of the seller arguing that the expenses are truly a form of economic benefit to the seller (and future buyer) the credibility of the data starts to wane.<\/p>\n<p>To recap, lenders want economic benefit to support debt service. Buyers want economic benefit because that is what he or she is essentially buying (future cash flow \/ economic benefit). As such, be careful how much you focus on minimizing tax versus maximizing value if you intend to leverage your business for lending purposes (even buying a house counts) or selling purposes.<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t<style><\/style>\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t<div class=\"info-box-wrapper\">\n\t\t\t\t<div id=\"wd-68b5926f34bd7\" class=\" wd-rs-68b5926f34bd7 wd-info-box wd-wpb text-left box-icon-align-top box-style- color-scheme- wd-bg-none border-btm-title faqs-wrap \">\n\t\t\t\t\t\t\t\t\t\t<div class=\"info-box-content\">\n\t\t\t\t\t\t<h2 class=\"info-box-title title box-title-style-default wd-fontsize-m\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\t\t\t\t\t\t<div class=\"info-box-inner reset-last-child\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Why_prioritize_business_value_over_tax_savings\"><\/span>Why prioritize business value over tax savings?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Because lenders and buyers focus on economic benefit, not just taxable income.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"What_is_SDCF\"><\/span>What is SDCF?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Seller\u2019s Discretionary Cash Flow measures the business\u2019s economic benefit to the owner, including add-backs for non-essential expenses.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Can_claiming_personal_expenses_as_business_deductions_hurt_me\"><\/span>Can claiming personal expenses as business deductions hurt me?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Yes, it may lower taxable income but reduce credibility with lenders and buyers.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"How_do_buyers_adjust_taxable_income\"><\/span>How do buyers adjust taxable income?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>They add back interest, depreciation, amortization, officer compensation, and personal perks to calculate SDCF.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"What_happens_if_I_over-adjust_expenses_when_selling\"><\/span>What happens if I over-adjust expenses when selling?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Multiple material adjustments can make your financials seem less credible and complicate the sale.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Do_lenders_care_about_my_tax_deductions\"><\/span>Do lenders care about my tax deductions?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Yes, lenders focus on actual cash flow and ability to service debt, not just tax-reported income.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Can_tax_deductions_impact_buying_a_house\"><\/span>Can tax deductions impact buying a house?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Potentially, as lenders consider economic benefit and cash flow when assessing loans.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Whats_the_key_takeaway\"><\/span>What\u2019s the key takeaway?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Balance tax minimization with maintaining accurate economic benefit for lending and sale purposes.<\/p>\n<\/div>\n\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t[\/vc_column][\/vc_row]<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>[vc_row][vc_column][\/vc_column][\/vc_row]<\/p>\n","protected":false},"author":6,"featured_media":62751,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[17],"tags":[],"class_list":["post-1393","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.8 (Yoast SEO v27.8) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Minimize Tax or Maximize Value - WCG CPAs &amp; 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He has been an owner of three small businesses, and holds both a Bachelor\u2019s and Master\u2019s in Business Administration from the University of Wisconsin \u2013 Madison.","url":"https:\/\/wcginc.com\/author\/jason\/"}]}},"_links":{"self":[{"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/posts\/1393","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/comments?post=1393"}],"version-history":[{"count":2,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/posts\/1393\/revisions"}],"predecessor-version":[{"id":90223,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/posts\/1393\/revisions\/90223"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/media\/62751"}],"wp:attachment":[{"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/media?parent=1393"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/categories?post=1393"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/wcginc.com\/wp-json\/wp\/v2\/tags?post=1393"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}