Home Business Tax Savings

Now that Lori has a job, she has to have professional clothing; this means a hefty dry cleaning bill. Ms. Quinn assumed that Lori's increased expenses here amounted to an extra $1,000 per year, nondeductible, of course.

Finally, with both spouses working, Lori wasn't in the mood to cook dinner every night. They bought more convenience foods and ate out more frequently. This resulted in increased food costs of a nondeductible $1,000 per year in minimum.

Add it all up and Lori's take home pay was a paltry $1,156 a year, for which she had to put up with a daily commute, an unpleasant boss, and corporate hassles. (See the following summary of all of these numbers, so you can do the math for yourself.)

No wonder more and more people are starting home-based businesses. In fact, there are currently an estimated 30 million people working from their homes.

This number is expected to more than triple, to 97 million, by the year 2000, and to keep on growing. This has become and will continue to be one of the greatest mass movements in the U.S.

Why a Home-Based Business Makes So Much Sense
There are many reasons why so many people are favoring home-based over traditional business.

There is no commute (unless you have a really big home), no boss, little if any chance of lawsuits, must lower overhead, no employees, (or few), and far fewer government restrictions. In fact, many of the laws previously cited don't apply to small firms with few or no employees. It is for these reasons, according to Entrepreneur magazine:

95 percent of home-based businesses succeed in their first year and achieve an average income of $50,250 per year with many earning much more.

There are really two sets of tax laws in this country. One is for employees, and it allows deductions for individual retirement accounts, 401(k)s (if you have one set up by your company), interest and property taxes on your home (which some in Congress want to do away with ), and charity. Then there are the laws for home-based business people who conduct their business either full-time or part-time. They can deduct, with proper documentation, their house, their spouse, and even children (by hiring them), their business vacations, their cars, and their food with colleagues. They can also set up a pension plan that makes any government plan seem paltry by comparison.

For Lori- and for you- the meaning of all this is simple:

Lori earned $15,000 in salary as an employee, but took home only $1,156. She could have netted the entire $15,000 had she earned it in a home-based business!

This is an increase of almost 13 times her take-home pay as an employee.

Notice that Lori is not spending dramatically more money than she is currently spending. She would eat out anyway, go on trips and drive her car the same as before. By having a home-based business, however, many of their expenses become deductible. This concept is known as "redirecting expenses." With a home-based business, she can now deduct some of the expenses that she is incurring anyway.

Renegade Strategy 1:
If you don't have a home-based business, start one today!

In addition to all the benefits mentioned above, Congress will subsidize you while you are growing your home-based business. If your home-based business produces a tax loss in the first year or so, you can use that tax loss against any other income you have. It can be used against wages earned as an employee, dividends, pensions, or interest income-or you can use the loss against your spouse's earnings if you file a joint return.

If the tax loss exceeds all your income for this year, no problem. You can carry back the loss two years and get a refund from the IRS for up to the last two years of income taxes paid, or you can carry over the loss twenty years. You read it right: You can offset up to 20 years of income!

Here's an example:

Mike earns $50,000 in a job with the government. If he starts a home-based business that generates a tax loss of 10,000, he only pays tax on $40,000.

Renegade Tip:
You can never lose a properly documented business deduction.

In fact, if everyone in the U.S., who is employed full-time, began a home-based business, used the strategies I suggest, each household could easily save between $2000 and $10,000 in taxes each year.

If all employees in the U.S. did this, the tax bite of the IRS would be reduced by a whopping estimated 300 billion dollars annually. Of course, Congress would have to change the laws for this to occur.

Renegade Strategy 2: Get LUCK- Labor Under Correct Knowledge.
Can You Succeed In a Home-Based Business?

Research has constantly shown that it's rarely the business that determines success or failure. It is usually the business owner. Why does one person succeed and another fail at the same business?

Two words- Knowledge and Action.

Some people want the benefits of having their own business, but they don't take action. The result is business failure.

Then there are the people who are always working. They take action but still fail. The reason is that they are not taking the correct actions, the knowledgeable actions that will bring the desired results. Again, business failure.

It's like drilling for oil. If you set up a drilling rig in your back yard, it is going to fail at producing oil unless your back yard is in Texas or Alaska. The same rig in a good field will produce a gusher, because it was placed where oil was known to exist.

The point is, most people who get excited about starting their own home-based business do so without all the necessary knowledge.

Consequently, many people quit before they acquire, through experience, the knowledge they need, without realizing that they are getting substantial tax breaks. This leads to another strategy....

Renegade Strategy 3: Learn to duplicate the success of others.
Duplicating the strategy of others is much quicker and more effective than going to the school of hard knocks.

It is also known as modeling, which is well-illustrated by the way The McDonalds Corporation blazed a trail to success that many have since followed.

In the early 1950's McDonald's and other start-up companies discovered that they could grow many times faster than the conventional firms through franchising. Instead of the company investing millions of dollars to build new stores, they let independent franchises do it for them.

It seemed like a great idea, but at first no one figured out how to make it succeed on a consistent basis; therefore, the media attacked relentlessly and continually. News articles featured destitute families who had lost their life savings through franchising schemes. Virtually every state attorney general in the U.S. condemned the new marketing method. Some congressmen even tried to outlaw franchising entirely.

Over the years, however, Ray Kroc and his management team at McDonald's developed a turnkey franchise business team at McDonald's franchise. The newfound success- from the system- turned public perception of franchising around. Today, virtually every franchise business models, to some extent, the franchise business system created by McDonald's, making franchising one of the most respected ways of doing business in the world.

Modeling is simply learning what other successful people have done to achieve success in a specific area, and then doing the same thing.

Someone said that "education is the shortcut to experience." With modeling, you literally leverage your own learning with the collective years of learning through experience of many others. Modeling the success of others saves both time and money and reduces frustration and stress.

The light at the end of the tunnel, for you and millions of others today, is the financial opportunity that starting your own business offers. If you have one going already, then make sure you are enjoying the many financial advantages to which your smart choice entitles you. The tax advantage alone can make a home-based business the single best financial move you could ever make.

Article written by Sandy Botkin
Sandy Botkin is a CPA, attorney and former trainer of IRS attorneys nationwide. Sandy's book, Lower Your Taxes Big Time!, is the best-selling tax book at Amazon.com. He lectures all over the nation on tax planning for self-employed and corporate taxpayers... he's been written up in Newsweek and many other magazines. He is also a syndicated writer and noted author of this famed tape series “Tax Strategies for Business Professionals” and “Tax and Financial Strategies for Residential Real Estate.” To find out more about Sandy and his products, visit his website with our affiliate link here: TaxReductionInstitute.com or e-mail Sandy at: info@taxreductioninstitute.com. Or, call at (800) TRI-0-TAX (800-874-0829 or (301) 972-3600.