Quote:
Originally Posted by DRU
If you don't have a business, you should create one. The tax benefits / savings will put thousands back into your pocket each year.
Seriously, it can be anything. Make it official and start tracking your expenses. Turn your after tax expenses into before tax expenses, and you'll save a bunch. If you have kids it's even better. Instead of paying taxes and then spending money on your kids, pay them through your business (which gives you the deduction) and then let them pay for their own stuff using their own bank account / debit cards. School supplies, lunches, clothing, sports stuff...all the stuff you spend on the kids anyway.
The first $6k you pay a kid under 18 is completely tax free. You get the deduction, so for example, if you're in the 25% tax bracket, that's $1500 your putting back into your pocket. You don't even have to pay FICA on that money, and the kid doesn't pay any income tax on that first $6k either.
What's cool, too, is that since they have a job you could open an IRA for them and get them started at a very young age with retirement savings. An early start on compounding is never a bad thing. So then, if you have the cash anyway or if the business is doing well enough to generate it, you can pay the kid another $5500 and get the deduction, and then that can go directly into the IRA tax deferred. So now you're getting a $11,500 deduction ($2,875 back in your pocket), and the kid has a solid foundation to build from as they grow up and are ready to become financially free.
Another example is your cell phone. Not uncommon for people to have $100/mo ($1200/year) phone bill. Again, assuming you're in the 25% tax bracket, that's another $300 you'd be putting back into your pocket.
You do this with auto expenses, home office, dining and entertainment, travel, etc. and you can save thousands. Then you can put those thousands towards debt, or if you're out of debt, back into the business, or towards buying other assets that generate more positive cash flow.
Owning a business is a fantastic way to "get ahead" because of the tax savings. So worst case you're pocketing the tax savings, and best case it takes off for you and becomes a solid secondary source of income or even a primary source.
Start a business!!!
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Lots of good information here.
Definitely some things to be weary of.
1. If you incorporate or start an LLC, it will indemnify you from business risk - biggest thing there is if you are sued for a billion dollars they fold up the business but can't touch you. If you dig too deep in deducting stuff it will pierce the corporate veil and you are personally liable.
2. Be careful on some of the small business deductions. Lots of asshats (not pointing fingers at DRU here) use a business to commit as much tax fraud as they can cram into one 1040. Accordingly, the IRS is a bastard on some of this stuff. IRS shows up, and they find something, they are going to go to looking.
If you pay the kids through the business, make them do some work. If you can't, they get cranky.
I wouldn't do meals. Like at all. Unless you are taking non-relative employees out to eat too. Travel expenses are just asking for trouble. I wouldn't do it. And besides, I think you can only take half.
Cars are a tough ask. You are going to have to assess a business use percentage for each listed vehicle. And (at least for farmers anyway) you can't deduct more than 75%. And then, you have to deduct a proportionate amount of fuel, repairs, insurance, taxes, and all that jazz. And if you **** up, they ding you on it. Moreover, if you deduct it, then trade it off, if the trade in value is more than the book value, it is gain. More tax.
If it were me, I'd keep a mileage log, and pay myself mileage out of the business account. It isn't too bad to keep a mileage log. I did it because I was using a personal vehicle for a bunch of farm stuff, and I wasn't about to go **** around depreciating the asshole, and splitting all that other noise out. Plus, if there is gain, it doesn't matter on a personal vehicle. Sure, you don't get to depreciate it, but I wouldn't go down that road.
The home office thing is a must do. Now, they have a rate per square foot that's really easy. As long as the space is ONLY an office (no treadmill or whatever).
Yeah, the correct answer is find a GOOD accountant (There are shit ones) and get to work. Even if it is a schedule C or E or whatever, keep track of legit stuff, keep the documents, take the deductions, be happy.
Don't take stuff that isn't there, keep the documentation, take what you can get, but only what's there.