YOU Can A Save a Fortune in Income Tax!

Here are seven ways for owners of small businesses to save money on their taxes.

1. Incorporate Yourself

If you're still a proprietor or partner of a business, it's time to incorporate yourself. Not only will you limit your liability, but you may enjoy lower tax rates on small business income and other tax advantages as well.

2. Be Home Based

If possible, continue (or switch to) being a home based business. Not only will you keep your overhead down, but you will be able to write-off (or deduct) the business use of your home.

3. Income Split

Pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.

4. Rearrange Your Affairs For Maximum Tax Savings

Can you make some changes to turn your hobby into a moneymaking business? Can you use that extra room in your house as a home office for your business? Can you arrange to use your car more for business purposes? Can you arrange for more of your entertainment expenses to be business related?

5. Document Your Expenses Well

Do you document your expenses well so that they would survive a tax audit? Have you kept a mileage log so that you can prove the percentage business use you claim for your vehicle? Have you kept receipts for all your entertainment expenses and listed the business purpose on the back of each receipt?

6. Be Punctual

File all returns and pay all taxes due (income, payroll, sales, et cetera) on time. This way, you avoid expensive late filing (and payment) penalties and interest.

7. Develop a Tax Planning Mindset

Some people only worry about their taxes during tax season. However, you will save a fortune in taxes, legally, if you make tax planning your year-round concern. Do you make business and personal purchases, investments, and other expenditures with tax savings in mind?

Resource Box

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over twenty-five years.

For profitable Work at Home Small Business Ideas, visit http://www.yenommarketinginc.com/

To learn how to reduce your income taxes, visit http://www.yenommarketinginc.com/income-taxes.html

Starting and operating your own home based business is the ultimate tax shelter.

Although this article has been written from a Canadian income tax perspective, the principles should be practical in other tax jurisdictions.

1. Non-Deductible Personal Living Expenses

All of us have expenses that we incur in everyday living.

Either you rent an apartment or house or you own your residence. Utilities, insurance, rent, mortgage interest, property taxes, and maintenance and repairs are typical costs of operating your home.

Likely, you have a vehicle which also consumes large amounts of cash.

Add to this, dining out, entertainment, gifts, alcoholic beverages, office supplies, telephone and many other expenditures, and you have a significant cash outflow.

In most cases, as an employee, retired person, investor, student, or homemaker, few of these expenses are tax-deductible to you.

This means that you must earn a considerable income, pay your income taxes first, and then use what is left to pay all your expenses.

Some employees may be able to write-off some of their employment related expenses, if such are required by their contract of employment. However, even in this situation, the tax deductions are very limited.

2. Your Own Home Based Business Means Tax Deductions

Now consider the situation where you decide to start your own home based business.

Suddenly, many of your everyday expenses are now being used for business purposes and are now tax-deductible.

If you use one quarter of your home exclusively for business use, you will be able to deduct (or write-off) one quarter of all related occupancy costs. These expenses may include maintenance and repairs (that are not capital in nature), rent, mortgage interest, house or apartment insurance, power, heat, water, and property taxes.

As well, your vehicle expenses used for business purposes are another tax write-off. If you use your car ninety percent for business purposes, you can deduct ninety percent of your vehicle insurance, gas and oil, maintenance and repairs, car washes, license and registration, auto club, loan interest (within certain limits), and other costs from your income. You may also write-off one hundred percent of your business related parking. Capital Cost Allownance (C.C.A.) on your vehicle is also allowed for income tax purposes; depreciation is the accounting term for this tax deduction.

The Canadian government also allows as a deduction, fifty percent of your business related entertainment expenses.

Also tax-deductible are business related telephone expenses, Internet access, office supplies, travel, books, memberships, and a host of other expenditures.

3. Income Splitting with Your Home Based Business

If you have a high paying job, you will pay higher taxes because the rates of tax increase as your income does.

With your own business, you can pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.

This tax saving technique is called income splitting. It is another good reason why your own home based business is the ultimate tax shelter.

4. Even a Part-Time Home Based Business Works

Even if you have a full-time job, running a part-time business can be advantageous.

Of course, you must actually run a real, moneymaking business. Any attempts to write unprofitable hobbies off will ultimately fail with the taxation authorities.

If you earned eight thousand dollars during the year from your part-time business and were able to deduct eight thousand dollars in car expenses, home office expenses, entertainment costs, office supplies, and other business related expenditures, you would have a net business income of nil. You would pay no tax on this additional income.

Don't miss this important point! Although these tax deductions are actual, legitimate business expenses, these are expenditures you would probably have made anyway, whether you had a business or not.

Thus, by rearranging your affairs to start and operate a home based business, you have been able to convert non-deductible personal expenditures into legally deductible business expenses. You have successfully sheltered your income from tax and have split your income with family members in lower tax brackets.

Yes, indeed, your home based business has become your ultimate tax shelter.

Resource Box

J. Stephen Pope, President of Pope Consulting Inc., has been helping clients to earn maximum business profits for over twenty-five years.

For profitable Work at Home Small Business Ideas, visit http://www.yenommarketinginc.com/

To learn how to reduce your income taxes, visit http://www.yenommarketinginc.com/income-taxes.html

Copyright 2002 Wayne M. Davies Inc.

With Tax Season upon us, here are 4 simple steps to lower your tax bill this year.

STEP #1: Understand How Serious Your Tax Problem Is

Are you aware of just how much in taxes you are paying?

Here's how much the average family spends on various consumer categories -- as a percentage of income.

You must realize that it's not how much you spend on taxes that is important, it's how much you spend on taxes as compared to all other major categories of spending!

Consumer Spending:
How Do You Spend Your Hard-Earned Dollars?

• Taxes: 32.0%


• Housing: 16.7%


• Medical Care: 11.5%


• Food: 8.2%


• Transportation: 7.9%


• Recreation: 5.7%


• Clothing: 4.1%


• Savings: 1.4%


• Other Miscellaneous: 12.5%


• TOTAL: 100.0%

So, if you think you are being "nailed" by the government, you are absolutely right. You spend more on taxes than any other category of consumer spending.

In fact, you spend more on taxes than on food, clothing, and housing combined!

And it's not just federal income taxes we're talking about here. There's also state and local income tax, payroll tax (Social Security and Medicare), sales tax, excise tax and property tax.

Maybe you already knew "intuitively" that your tax bill is outrageously high. If not, the picture I've just painted should thoroughly convince you that you pay too much tax, period.

STEP #2: Get The Right Attitude About Your Taxes

What do I mean by this? Well, you simply must have a certain "mental attitude" toward this whole idea of paying taxes. I'll get right to the point -- you must have an attitude about taxes that says, "Enough is enough. I'm paying way too much tax and I don't like it! And it's about time I did something about it -- TODAY!"

After reading those numbers above, how do you feel? Doesn't that just make you furious? If so, great, then you are on your way to solving this problem. (Remember the old cliche -- "You can't solve a problem until you admit you have one!")

If you saw those numbers above and said, "Big deal. So I pay 32% in taxes. So what? So does everybody else in this country" -- well, I'm sorry, but you might as well just stop reading this article right now. You will continue to pay too much tax because you really don't care about it.

To reduce your taxes, you must have a passion for paying less tax. You must get angry about it.

Before today is over, go get last year's personal income tax return (Form 1040) and look at how much tax you paid.

When you have Form 1040 in front of you, do you realize where the most important number is on this form?

NO, it's not Line 67 -- which tells you how much of a refund you got (if any!).

NO, it's not Line 70 -- which tells you how much you still owed, the balance due with the return.

The most important number on Form 1040 is Line 58.

It says: This is your TOTAL TAX. That is how much federal income tax you paid for all of last year. When it comes to reducing your taxes, it doesn't matter whether you got a refund or whether you had a balance due.

What matters is -- what was your total tax liability for the year. That's the "magic number" that should just make your blood boil and your heart beat so fast that you can hardly stand it.

Now that I've got you all "riled up" about paying so much tax, let's move on to Step #3.

STEP #3: Realize That Reducing Taxes Is The Easiest Path Possible To Creating Wealth

Consider this simple fact: Reducing your taxes by just $4,000 per year is the easiest way possible to becoming a millionaire.

Let me elaborate.

Let's say you implement some new tax-saving strategies that reduce your taxes by $4,000 each year. Now, if you take that $4,000 per year in tax savings and invest it over the next 30 years, assuming you earn 11.5% on your investment, you end up with $1,048,745.98 at the end of the 30 years!

And here's the best part about this scenario: Where did you get the $4,000/year to invest? Well, you got it from money that would have gone to Uncle Sam! It's money that you used to spend on taxes, part of the 32% of your income that goes to taxes each year.

In effect, it's free money! It's money that was always there -- you just didn't realize it.

Is this a good deal or what? By simply reducing your taxes, the government will finance your million-dollar retirement.

And let's say your tax situation is such that you save $2,000/year instead of $4,000/year. Same assumptions: you invest the $2,000 each year at 11.5% for 30 years. End result: $524,372.99. Not too shabby, eh?

So all you have to do is come up with the tax-saving strategies that will put $2,000 or $4,000 in your pocket each and every year. Which brings us to Step #4.

STEP #4: Get Hold Of The Tax-Saving Strategies That Will Make You A Millionaire!

You know, it doesn't really take much information to save a bundle in taxes. It is true: Just A Little Bit Of Tax Knowledge Can Save You Thousands Of Dollars Every Year!

Useful tax information is freely available. On the Internet, at your local library, and through your local tax professional.

The question is: Are you willing to spend some time this year learning about effective tax strategies that can save you literally thousands of dollars?

Here's a simple goal to set for yourself: Over the next 10 weeks, set aside just an hour a week to read up on tax- reduction strategies. That's all, just 10 hours.

Chances are you'll find 2 or 3 strategies that reduce your tax bill by $1,000 this year.

So you spend 10 hours and, in effect, pay yourself an extra $1,000 for your time. Not a bad hourly rate, eh?

Many times, that's all it takes to pay less tax.

Resource Box

Wayne M. Davies is author of the new eBook, "The Tax Reduction Toolkit: 29 Little-Known Legal Loopholes That Will Reduce Your Taxes By Thousands (For Small Business Owners and Self-Employed People Only!)". Don't file another tax return until you visit The Tax Reduction Toolkit, part of the Ultimate Tax Reduction Guide.

Copyright 2002 Wayne M. Davies Inc.

This article is based on the following 2 assumptions:

1) You are a small business owner or self-employed person (including home-based businesses and part-time entrepreneurial activities).

2) You don't like to pay taxes. In fact, whenever you think about paying taxes, you get so mad you end up "all lathered up and nowhere to go."

Now, if paying taxes makes you so upset, what have you done about it lately?

Why was your tax bill so high last year?

You paid too much tax last year (and the year before that, and the year before that . . .) because you have probably been an innocent victim of many popular myths about taxes.

Here they are. Get rid of them or you'll be stuck paying too much tax forever!

Tax Myth #1: "I don't make enough money to worry about reducing my taxes."

Nothing could be further from the truth. People at all levels of income can pay less tax.

Tax reduction strategies are not just for the rich and famous. No matter how much money you make, you can pay less tax than you currently pay.

In fact, even if your business (or part-time entrepreneurial venture) has a loss, you can use that loss to offset other sources of income, such as wages from a "regular" job, your spouse's wages, investment income, rental income, other business income.

And if your business loss is so great that it more than offsets all your other income, you can take advantage of a special rule that lets you: a) Carry back that excess loss to the 2 prior years, thereby entitling you to a refund of taxes you already paid for either (or both) of those 2 prior years; and/or b) Carry forward that excess loss to the next 20 future years, so that any income you earn in the future will be reduced by that excess loss.

Tax Myth #2: "Tax reduction strategies are too complicated for me to use."

Again, total and complete hogwash. There are plenty of ways for you, the average American, to lower your taxes.

Tax reduction is not just for the wealthy who pay high- priced attorneys to finagle their way out of paying taxes with sophisticated tax-avoidance schemes, like off-shore trusts and foreign bank accounts.

The average Small Business Owner has plenty of tax reduction strategies at his/her disposal. You just have to know what they are and how to use them.

Tax Myth #3: "I had my return prepared by an Accountant, so I know I paid the right amount of taxes."

There are thousands of excellent, hard-working accountants doing a great job. And if you use a tax professional, maybe he/she has done everything possible to reduce your taxes to the legal minimum.

Based on my own experience, however, I'm convinced that many taxpayers who use professional tax preparers are overpaying their taxes, sometimes by thousands of dollars each year!

Why is that? Well, there are many reasons. The most obvious one is this: Many professional tax preparers are just that: tax preparers and tax preparers only.

A good tax accountant may know how to prepare a tax return in his/her sleep. He knows the forms backwards and forwards. He knows what numbers go on which form perfectly.

But that's it. That's all he/she knows.

A good tax preparer is not necessarily knowledgeable in tax reduction strategies. There's a big difference between a good tax preparer and a savvy tax reduction specialist.

When you look for a good accountant, make sure you find one who doesn't just "do the returns", send out a bill and say "Next, please."

Tax Myth #4: "My tax situation is OK because my BLANK (fill in the blank with a family member or other "good friend")takes care of my taxes."

There are various versions of this myth. Do any of these sound familiar?

"My brother-in-law takes care of my taxes."
"My uncle takes care of my taxes."
"My college buddy takes care of my taxes."

And of course, the same problem exists with Myth #4 as Myth #3. Even when someone you know and trust does your returns, how do you know that this person is a good tax reduction specialist?

And often, many of these family members or "buddies" are not even professional tax preparers. This person just happens to be "The Family Accountant. Just like every family has one person who knows a lot about cars (or mutual funds, or carpet cleaning, or whatever), many families have someone who "knows enough to be dangerous" with regard to taxes.

And even if your "Family Accountant" is a professional tax preparer, he's probably not charging you for the return. He's doing you a favor. He prepares your return; you change his oil.

My first reaction to this kind of situation (when someone is getting his/her return prepared for free) is this: You get what you pay for! When a family member does your return "for free", how much attention can he give to your need for tax reduction strategies? Probably very little.

Tax Myth #5: "My tax situation is OK because I prepare my own returns."

If this statement applies to you, then perhaps you are a "do-it-yourself-er". Money is tight and you are used to doing things yourself anyway, so why not save a few bucks each year and do your own returns?

So you've spend countless hours over the years pouring over the forms and instructions, trying to figure out how to do the returns. And you've done OK. No letters from the IRS, no audits. Hey, pat yourself on the back!

And now that tax preparation software is so readily available and affordable, doing your own return is a breeze! Just key in a few numbers here and there, push the print button, and presto, you've got your return done in record time! And now you can even e-file your return with your own computer.

Have you ever heard of the book, "The Millionaire Next Door" (by Thomas J. Stanley and William D. Danko)?

This book describes the common characteristics of millionaires in our country. My favorite millionaire characteristic is this:

Millionaires become millionaires by minimizing their taxes and getting their tax & other financial affairs in order.

Now comes the "Million Dollar Question": How do you think millionaires get their tax affairs in order? By doing their own tax returns? Of course not! Millionaires NEVER do their own tax returns! They have more productive things to do with their time.

Instead, what millionaires do is spend time and money each year on tax planning and tax reduction strategies, not figuring out what number goes on which line of Form XYZ.

So my challenge to you is this: What are you going to do this year to reduce your taxable income?

Are you a believer in any of these 5 myths? Now's the time to get rid of them, once and for all.

Your financial well-being depends on it.

Resource Box

Wayne M. Davies is author of the new eBook, "The Tax Reduction Toolkit: 29 Little-Known Legal Loopholes That Will Reduce Your Taxes By Thousands (For Small Business Owners and Self-Employed People Only!)". Don't file another tax return until you visit The Tax Reduction Toolkit, part of the Ultimate Tax Reduction Guide.