Dave Ramsey Warns That A Bigger Income Means Bigger Tax Problems. Says, 'Don't Buy Stupid Stuff You Don't Need Just To Save On Taxes'

A Florida business owner called into Dave Ramsey‘s “EntreLeadership” podcast recently with a classic good problem: higher profits and a bigger tax bill. Ramsey applauded the success but didn't sugarcoat the reality of growing income.

“It’s a problem with making more money,” Ramsey said. “You got a tax problem now. Because your income’s awesome.”

Don’t Let Taxes Push You Into Bad Decisions

The caller, Tyler, owns a moving company near Jacksonville and made about $1.9 million last year. He said this year is shaping up even better, with profits up 12% to 15%. Sitting on $150,000 in cash, he wanted to know if he should look for ways to reduce his tax burden.

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Ramsey was blunt: “Don’t buy stupid stuff you don’t need just to save on taxes. If you get a $100,000 write-off on something that you didn’t need, your only tax benefit is it saves you about $30,000 in taxes.”

He explained that a tax write-off is “a dollar trade for 30 cents,” so spending on unnecessary equipment or upgrades just for a deduction is financially foolish.

Instead, Ramsey told Tyler to talk with his accountant about updated depreciation rules that could allow more immediate write-offs on business equipment. But he added, “If tax is your only motivator, you’ll usually make a dumb decision. I’ve tried that myself a time or two.”

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Stacking Cash And Tackling Personal Debt

Tyler mentioned that this year's goal was to build up a stronger cash reserve after a tight last year. His goal is to reach $350,000 in business savings to cover three months of expenses. But Ramsey found one big issue: Tyler and his wife still have $45,000 in personal debt and are on “Baby Step” two of Ramsey’s plan.

“Oh, I’d do that today,” Ramsey said. “I wouldn’t have retained earnings that large while I had 45K at home sitting there. I’d clear that.”

Even with Tyler’s concern about the winter slowdown in the moving industry, Ramsey wasn't worried. “You break even during those months. You just don’t make a lot of profit,” he said, adding that strong momentum might even flatten out the seasonal dips.

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The Tax Burden Of Small Business Success

Ramsey also took the opportunity to point out what he sees as an unfair tax burden for small businesses.

“That’s the problem with a sub-S or an LLC or a sole proprietorship,” he said. “Any money we try to keep in the business, we have to pay taxes on because it’s profit.”

He continued, “When Washington says we love small businesses, we want to help small businesses—they lie. Because that’s an unfair tax code. I didn’t take it home. I didn’t spend it. It’s sitting here for survival purposes… but I have to pay tax on it for it to sit there.”

In the end, Ramsey's recommendation was simple: “I’d pay my taxes, and I’d pay off the 45,000 today. I’ve made your wife happy today. That’s pretty cool. She’s going to ‘Woohoo. My husband just bonused himself 45K and we’re out of debt. Woohoo. We’re debt-free. Woohoo.'”

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