The taxes you have to pay each year have nothing to do with how much you earn. The amount of income tax you pay is directly affected by how much you know about legal and acceptable income tax deductions. Doing your income taxes yourself or turning in all of your income statements and receipts to the tax preparer at the mall each spring is a surefire way to pay more income taxes than you should.
The tax system is complicated, but with the help of a qualified tax specialist or accountant, you should be able to recover a large amount of the income taxes that are deducted from your paycheck each week. There are many legal ways to reduce or completely eliminate the amount of tax you must pay each year, and this article will focus on one of them. How to save money on your income taxes by starting your own home based business.
The current tax system is progressive in the sense that the more money you earn, the higher the percentage of tax you have to pay. A person making $30,000 a year might pay close to 30% in income taxes, while someone making $100,000 would be in the 40% tax bracket.
You are not taxed on your total income, but on what is called “net income.” This is calculated by removing personal and basic deductions from your total income. Most companies will take income taxes from your paycheck each week based on your estimated net income for the current year so you don’t have to pay income taxes at the end of the year, but you also won’t get a refund. .
So, if you earned $40,000 for the year and your basic deductions reached $8,000, your net taxable income would be $32,000. This amount taxed at 30% would mean you would have had to pay $9,600 to your tax department. government throughout the year.
Now that you understand that you pay taxes on net income after deductions, doesn’t it make sense to find ways to legally increase the number and total amounts of these deductions? If you earned $40,000 a year and had $40,000 in income tax deductions, your taxable income would be zero and you would recover 100% of the income taxes you paid that year. This is how the rich manage to avoid paying income taxes every year; by having enough deductions to offset your total income.
One of the best ways to create substantial tax breaks is to own and run a small business from home. By owning a home-based business, you can begin claiming deductions on things and activities that others consider personal.
here is my example
I have a full time job, but I also run a small business from my home as a freelance travel consultant. As a travel consultant, I write hotel and resort reviews and recommend an alternative to timeshare condos for people looking for a great deal on hotel stays.
Now, as a small business owner, I can claim the use of my car as an income tax deduction. I can claim most of my car expenses because I use it mainly for business. Every day I make a list of where I am going to drop or post advertising for my business. That list could include the dentist, where I have an appointment after posting a flyer. It could include the supermarket, after posting a flyer on your bulletin board, you could do some shopping. It could be the clubhouse at the golf course, where I… You get the point. Every place I go during the day I do it to advertise my business. If there’s anything in that place that I need or want to do, it’s just a coincidence and makes 90% of my car expenses tax deductible.
Since I have an office in my home, I can also claim a part of my mortgage, taxes, heating, lighting, maintenance, etc. My office is on the base and that makes up a large percentage of my house. The percentage of household expenses that I can claim as deductions is close to 30%. This means 30% of the mortgage, taxes, water bill, heating and maintenance of the house. This can add up to a few thousand dollars in income tax deductions each year.
Use of a telephone, Internet, professional membership, website hosting, and any other fees that are required to conduct business can also be claimed as business deductions.
I am a travel consultant, so most of the expenses I incur while on vacation are tax deductions. That’s airfare, hotel stays, car rentals, meals, and other expenses. Every day while on vacation I produce a short video about the resort or the places I visit using my camcorder. These videos are then used as internet commercials for my business and this makes my vacation fully tax deductible. It’s 3 or 4 trips a year that are a legal tax deduction for my business.
Computers, DVD players, cameras, camcorders, and cell phones are essential tools of my trade and are therefore tax deductible.
As you can see, these are things you owned and activities you did before you had a business. But now that I’m a travel consultant I can deduct them and lower the amount of income tax I have to pay each year. These particular practices saved me over $4,000 in income taxes last year.
Do yourself a favor and consult with a qualified tax specialist or accountant to discuss the advantages of starting your own home-based business and recovering your income taxes.
