Details About the Tax Advantages Behind Running Your Own Independent Business From Home

Mistakes to avoid:

NEVER..

=>Cheat
=>Exaggerate
=>Claim deductions that never occurred.
=>Be scared into not taking your legitimate deductions for which you have documentation.

There is NO LAW that says you have to pay as much tax as possible. Tax avoidance is commendable, TAX EVASION is what can put you in jail.

Tax Evasion vs. Tax Avoidance? = Tax evasion is not paying the taxes you legitimately owe, or creating false information about your income/expenses to avoid paying taxes.

Tax avoidance is simply using the IRS laws to legally reduce the taxes you owe.

HOW MUCH CAN YOU SAVE?

First of all, do you have any idea how much you paid to the government for state & federal taxes last year?

Go and review your last tax return and take a look at the total taxes paid to the federal and state governments. It isn't important what you might have received as a tax "refund"%u2026 look at the actual amount you paid. With proper documentation and deductions, you can legally reduce this tax burden.

Either you can decide to increase the number of dependents on your W-2 (thus instantly improving your cash flow), or you can wait and get a much larger tax refund the following year.

Odds are 100 to 1 that you will get audited. If you file taxes for 100 years, you'll get audited 1 time.

Use the documents and the filing system to make the audit an easy chore.

Your strategy is to convert as many existing deductions into tax deductions:

Rent, car & house payments (via automobile mileage deductions and home-office business deduction), phone, utilities, having children on payroll, gift-giving, purchases, etc.

2 children on payroll can represent a $9,000 a year write off.

THE #1 thing to remember is:

DOCUMENTATION IS EVERYTHING!

Receipts are CASH!

When it comes time to prepare your taxes, use a competent software program like TaxCut, orTurboTax.

These programs make it easy to do you taxes as they will ask questions and you simply provide the answers.

If you use a tax preparer, then they need to know the ins-n-outs of
your business (a Home-Based Business).

Don't expect a tax preparer to know what you're doing!

Intimidated by an audit?

If you have good records, and are taking your deductions honestly, then
you should not worry. IRS tries to create issues, but you don't have to offer any more information than what is asked for by the documentation.

INTENT to make a profit.

You have to make a good-faith effort to build a business. You need to validate not only your receipts, but also need to show that you are indeed trying to make a profit.

Overhead in a home-based business is FAR less.

We're converting some expenses that we already have to operate our business.

We already have a home, cars, etc. so we just use what we have.

3 Tax Laws in America:

1. Business Owners

2. Home Owners

3. Renters: Renters get the short-end of the stick. No write-offs for rent or anything else like that. So operating a home-based business as a renter can be a huge windfall.

You can have an office in the home, and write-off a portion of the rent, utilities, phone, etc.

The area that is used for business use must be EXCLUSIVE to the business.

Set aside specific area for business.

Take total square footage of business area, vs. total sq. footage of house = a percentage of how much you can write off of Home Owner's Insurance, utilities, etc. etc.

Your furniture and equipment can be converted to business use.

Automobiles:

2nd largest expenditure.

Mileage from home to a location for business meetings is deductible.

Keep a high percentage of business use for your vehicle.

Insurance, gas, appreciation, even some deductions for a car loan.

Actual expenses vs. per-mile expenses. Try out both methods, see which saves you more.

Convert your pre-existing expenses into business expenses.

Pay the children:

100% business activities (answering phones, computers, filings, meetings, etc.)

Start with minimum wages, and work their way up.

2 Children can be paid over $9,000 with NO TAX CONSEQUENCES.

Each child has the personal exemptions rules.

Tax Advantages begin immediately when you start a Home-Based Business:

Setup record keeping immediately.

Keep all receipts, mark down mileage, write down who, where, and why!
A brand-new person has every tax benefit that a long-term veteran has.
80-90% of the time, people will save enough on the taxes that it funds their business for them!

Normal Operating Business Expenses are all deductible.
DSL service
Phone costs
Marketing

Advertising -as long as it is ordinary & necessary, and has a business building reason for it.

Make sure it is appropriate and helpful.

Itemized Deductions go on Schedule A

Your Profit/Loss reports are filled out on Schedule C

A Home-Based Business lets you setup pension plans, IRA's, SEP-IRA's, etc.

This gives you huge leverage in setting up a healthy retirement plan. Allows you to put away as much money as the law allows, tax-free.

START a home-based business to build up your skills, offer something of value, create cash flow, but also build up equity -- and equity is NOT taxable.

The equity is the value of the business if you went out and sold it. You can sell a residual income type business!

2-income homes pays a lot higher tax rate than we realize. The 2nd earner does not make nearly as much per hour as they might think.

Developing a 2nd income source, which would eventually allow at least one person to stay home, reduces taxes, raise the kids, grow a business, etc.

Geographic flexibility!

You have a home-based business, you can move anywhere you want!

When you're paying a lot in taxes, having a HBB makes a lot of sense. You can start converting lifestyle expenses into tax write-offs, develop a new income source to replace someone's job, etc.

-2 worker family = 4 incomes:
-02 jobs
-1 business
-1 tax savings

Setup a RECORD-KEEPING system immediately!!

It makes you start thinking about receipts immediately and puts the legitimacy of the business in your mind
right away.

At the very least, save all receipts and file them at least once-a-month if not weekly.

Make yourself AUDIT-PROOF! Keep good records.

When you realize that just a few hours every month saves you thousands of dollars... you realize that you're paying yourself HUNDREDS OF DOLLARS AN HOUR to do the important filing information.

Tax Benefits can be a recruiting tool... and a retention tool. USE IT!