Really? The Beanie Babies guy? Tax evasion?

It's true. Ty Warner, the college dropout who became a billionaire creating the Beanie Babies collectibles, pleaded guilty last Wednesday to tax evasion. He hid millions of dollars in a Swiss bank account and is facing five years in prison.

Don't hide your money in Switzerland (duh). 

I'm pissed off, perhaps a little irrationally, because those dollars belong to me. For years, my daughter collected those ridiculous looking toys. Obsessed, she had them all: Safari the Giraffe, Slush-Husky, Nibbly the Bunny, Hannibal Lector. (Just kidding about Lector, but can you believe this stuff?) But those things weren't cheap. I sunk a lot of money into those ridiculous dolls. And then Warner squirreled my hard-earned cash into a Swiss bank account--so he could avoid paying taxes? Grrrr.

What makes me even more peeved is Warner's stupidity. No one wants to pay taxes. But that's the best he could come up with? Hiding cash in Switzerland? Every business owner I know goes to great lengths to minimize their tax burden. All he needed to do was hire a good accountant and practice a few of the legal, time-tested tax avoidance strategies that many of my clients do. 

Here's how to "avoid," not "evade," taxes.

Inventory. Smart business owners know that the higher the inventory they have, the more taxes they have to pay. That's because when inventory depletes, it becomes a cost of sale and therefore an expense. So was Warner doing everything he could to keep his inventories at their minimum? Did he get write off bad or damaged goods? I would've been more than happy to torch a warehouse or two of it meant I'd rid the world of this Beanie Baby pestilence. Were his reserves for obsolete inventory suitably established and was older inventory written off according to an established policy? Was his manufacturing outsourced enough so that he could have others produce product and only ship to him when he needed (or just drop ship to his customers)? Doing everything he could to keep his inventory balances at their lowest would have kept his tax bills down. That's what smart business people do.

Accounts Receivable. I know it's hard to believe this, but not everyone wants a Beanie Baby. Shocking, yes, but true. So there must be certain situations where Warner's company shipped product and their deadbeat customers didn't pay them. I, for one, salute those people. Smart business owners keep a very close eye on their accounts receivable, establish reserves for those that are in question, and have a policy for writing off bad debts. That way they can stay on top of this deduction and keep their taxable income as low as possible.

Other reserves. Not everyone likes Beany Babies. My sons really enjoyed cutting the arms and legs off my daughter's Beanies once in a while. I always pretended not to notice. But did Warner make sure to have reserves for damaged or abused Beany Babies? Did his company take the time to reserve for inventory in transit or expenses that were incurred before the end of the year for which an invoice wasn't yet received? Did they do a good job considering other liabilities, such as lawsuits or contingencies, that should be reserved? Tax laws won't let you deduct this stuff until you actually incur the expense. But they need to be on your books, tracked, and then written off when allowed.

Equipment write-offs. Don't tell my daughter, but those cute little Beany Babies aren't created by their Beany Baby mommies and daddies. They're made by Satan. Okay, they're actually manufactured by huge, powerful machines. Those big machines are a potentially large tax deduction. The tax code (Section 179) allows many businesses to deduct up to $500,000 in equipment purchases a year. Unfortunately, this law is set to expire at the end of 2013. Maybe Warner's company was too big to take advantage of this deduction, but most small businesses are eligible. It's a great way to take a big deduction this year instead of having to depreciate your equipment over a few years.

Retirement plans. I guess Warner, if he gets sentenced to five years, has his retirement plan all figured out for now. But many small business owners I know, who are tax savvy, are sticking away as much money as possible into SEP, 401Ks, IRAs, Keoghs, and other retirement plans where they can deduct against their profits and put away money for the future. Why not put your money here instead of a Swiss bank account?

Accelerating income and expenses. People do this all the time, especially those lucky ducks who are small enough to still be on the cash basis of accounting. If you're one of those people, take advantage of this benefit, particularly if you think tax rates may go up. So, for example, business owners who anticipated that tax rates would rise in 2013 chose to accelerate their income into 2012. If you're going to pay taxes, you may as well pay them at a lower rate. No need to hide your assets in a Swiss bank account, get caught, go to jail, and ruin the hopes and dreams of countless little girls around the world.

Gifts. Speaking of little girls, do you have one? Or a son? If you do, you're allowed to give them a tax-free gift of up to $14,000 annually so you can save on estate taxes. Or you can contribute money into a 529 plan where it can grow (also tax-free) as long as you use it for your child's college education. I have three kids who just went off to college and those 529 plans were a huge help.

What else can we learn from the Beanie Babies fiasco?

First, apologizing doesn't help. No one cares if you paid more than a billion dollar in taxes over your lifetime (as Warner claimed). In fact, most of us are kind of amazed at how profitable those stupid Beanie Babies are. The more money you make, the more exposure you have, and the more chance you'll find yourself in the IRS' sights. The more in the public eye you are, the more careful you have to be. So maybe, Mr. Warner, if you charged just a little bit less for those stupid little Beanie Babies, you wouldn't find yourself in this predicament.

Sure, taxes are high. And they're probably going to keep going up, especially as we pay down our huge national deficits and debt. But you don't have to hide your money in a Swiss bank account for God's sake. If there's anything to be learned from Warner's ordeal, it's that you can ut back the amount of taxes you pay by being strategic. And speaking of cutting back, anyone interested in a few thousand slightly used Beanie Babies (including a dozen without arms and legs)? My daughter's off to college now and those tuition bills are enormous.