[Disclaimer: None of these posts should be considered legal or financial advice.  You should consult an attorney or CPA in your area to advise you on the specifics of your situation.  Life Tip: Don’t believe anything you read on a blog on the Internet unless you have checked it yourself.]

Hello Reader… 

Are you dreading Tax Day April 15? (If you want a place to blow off steam, there is a big Tea Party movement underway here in America protesting the current direction of our government bailouts- you might want to join them on April 15 in your town– google it)

I think that we reap the benefits of living in America, and we are obligated to pay the exorbitant taxes that the various levels of government confiscates from our earnings each year under threat of imprisonment.  However, I do not believe that there is anything good or patriotic about paying more taxes than we are legally obligated to do.  Our only choices is to vote for more economically-literate politicians or to move to another country.    

I believe that the most important thing that you MUST DO in order to minimize your taxes is to own your own business…

Besides the tax advantages, you also get liability protection for your personal assets should your business “harm” someone resulting in a lawsuit and you are looked at as more professional by many people you want to do business with.  We’ll discuss these aspects in more detail later, but let’s concentrate on the tax savings…

There are three ways owning your own business allows you to reduce your taxes legally… We’ll talk about one each of the next three days. 

1. Business Expense Deductions
2. Payroll Taxes
3. Timing of Income and Expenses

Business Expense Deductions

In the most simple explanation, businesses have income or revenue that comes from their customers in exchange for goods or services.  And they have expenses that are generated in the course of doing business.  For tax purposes, we take the income and subtract the expenses (also called Deductions) and we pay taxes on the profit that is left over.  So we want to keep track of as many deductions and business expenses as we possibly can, while remaining within the law. 

Regular individuals do NOT have the same ability to total up and subtract deductions without setting up a business. (even a Schedule C sole proprietorship business which I wouldn’t recommend in most cases)

As a simple example, if you have a small jewelry business, then you will have all of the revenue from selling the jewelry in all the many ways that you can find to sell it.  You will have a number of expenses such as:

¨     the jewelry that you purchase from the manufacturer

¨     the commissions you pay to those who sell your jewelry

¨     your automobile expenses incurred in the operation of the business

¨     your travel expenses (plane, hotel, meals) incurred in the operation of the business

¨     advertising, website and Internet expenses (including training and Education)

¨     computer, phone, etc.

¨     office supplies

¨     rent- office, warehouse, storage

¨     and a whole lot of other things that you spend on your business (you just need to keep good records and document the business use)…

In many cases, people build their businesses out of things that they are passionate about, and turning this into a business allows you to “write-off” a lot of expenses that might otherwise be paid for with after-tax dollars.   Since most of your income is reduced by 35-50% in taxes (add up 7.65% Payroll Tax plus 15-35% Federal (and going up) plus whatever State and Local taxes (6% in GA) and you are often paying 40-50% in taxes on any dollars that you earn in wages.  If you can pay for some things using untaxed dollars (and deduct them from your business, and thus from your reported income) then you are able to get things at an effective 40-50% discount.

So, you must have your own business.  Tomorrow, we’ll talk about what kind of business allows you to Minimize Your Taxes the best…

Have a Great Day,

Rob