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A Different Way Of Thinking

By John Dietz - Email Editor

Date: March 07, 2006

Some years back I was telling Mike, my friend and CPA, about my new boat. This wasn’t just any old boat, but a cigarette style, the Corvette of watercraft - essentially a pair of massive engines with two seats attached. He indulged as I went on about it for ten minutes. “Sounds great,” Mike offered, absent my passion, “but will you be able to tax-deduct any portion of this life-or-death purchase?”

Huh? Taxes? Mike doesn’t get it: I have a new boat! A new toy, an item for my enjoyment not subject to the scrutiny of his abacus. ”Why in the hell should I be concerned with the tax-deductibility of a boat?” I asked.

“Because,” he explained, “you need to take into account the tax ramifications of every purchase. Learn the fundamental rules of the tax system – not the volumes of tax code that changes from year-to-year, but the unchanging underlying principles. Apply them to everything you buy. Until you do this, you’ll never amass any net worth and someday, perhaps too soon, you’ll be selling that boat to someone who has.”

He went on. “You and the government are partners. Learn what is deductible and what is not. Only then will you understand how to legitimately lower your tax rate. And should a net dollar find its way past your boat and into your pocket, you’ll realize how much work it took to get there. This realization should dictate all of your spending habits – not just those that apply to your business.”

So my sleek, sophisticated, one-of-kind, gas-guzzling siren offered no tax advantages. It had been a reward I’d presented to myself. I wanted it, I deserved it, I should have it. And now, applying Mike’s golden rule to this purchase, I realized she was a lot more expensive than the sticker price I paid (phraseology not limited to watercraft …).

Mike taught me a valuable lesson that resonates in every purchase I make today. Run, don’t walk, from snake-oil salesmen promoting ways to help you avoid paying taxes. Learn the rules and play by them; they force you to be fiscally responsible, mindful of all purchases, and suppress spending whims.

I am not saying don’t treat yourself when the time is right. Follow this simple concept and your biggest challenge may be whether to purchase a Gulfstream or a Lear. When it’s time, go for the Gulfstream…..that’s what Warren Buffet did.

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