Pay the IRS or Pay Yourself: A Smarter Way to Think About Taxes
Each year, many business owners reach the same moment. Tax returns are finalized, quarterly payments are made, and a significant check is written to the IRS. For some, that check is substantial. Six figures is not uncommon.
At that point, the question is no longer theoretical. It becomes practical.
Is there a better use for these dollars?
The Hidden Cost of Paying Taxes Without a Plan
When taxes are paid outright, the money is gone. It does not compound. It does not support future goals. It does not strengthen the business or the people behind it.
For many closely held businesses, those same dollars could instead be directed into a qualified retirement plan. When designed intentionally, a 401(k), cash balance plan, or pension style arrangement can redirect income that would otherwise be taxed today into a long-term, tax sheltered strategy.
This is not about avoiding taxes. It is about choosing when and how they are paid.
Why Deferral Matters for Business Owners
Most business owners are in their highest earning years during active ownership. That typically means higher tax brackets and less flexibility around income recognition.
Qualified retirement plans allow owners to defer a portion of income during these peak years. Those contributions grow inside a tax sheltered structure and are generally taxed later, often during retirement when income and tax rates are lower.
Even when taxes are ultimately paid, the value created through years of compounded growth can materially change the outcome.
Understanding the Role of Employee Contributions
A common hesitation is the requirement to contribute for employees. While this is part of most qualified plans, it is often misunderstood.
Well designed plans allocate contributions in a way that remains efficient for the owner while still supporting employees. These contributions can also reinforce retention, stability, and alignment within the business.
When compared to sending the same dollars to the IRS with no future benefit, many owners find the tradeoff worthwhile.
When This Strategy May Not Be the Right Fit
Retirement plan design should never be one size fits all. Businesses with highly inconsistent income, near-term liquidity needs, or unique ownership structures may require a different approach.
That is why plan design must start with the broader financial picture, not a product.
A More Intentional Question
Taxes are unavoidable. How they are planned for is not.
For many business owners, the decision is less about paying the IRS and more about whether today’s tax dollars could be working toward future security instead.
At Nydia Retirement Solutions, we believe thoughtful retirement plan design is not just about compliance. It is about creating stability, clarity, and long-term confidence for the people and businesses we serve.
