How to Reduce Your Taxes

By Sandy Botkin

I get queries from reporters all the time asking me for one tip that would reduce our taxes. Without hesitation, my answer is to start up a full- or part-time small or home-based business and work it like a business.  Why? We have two tax systems in both the U.S. and Canada. I'll give you a hint: It isn't one for the rich and one for the poor. It is, however, one to make you rich and one to make you poor. The one to make you poor is for employees. Why?

First, they don't get that many deductions. Second, they are taxed on dollar one. If they have employee business expenses, these expenses must exceed a threshold before any deduction can be taken. Finally, if you take too many employee deductions, they could cause alternative minimum taxes that result in the complete elimination of employee and itemized deductions.

However, if you have a small business, you can get all deductions available to employees PLUS you get to write off part of your house, your spouse, and the equivalent of your kids' education (no kidding). And you can set up a pension plan that makes any government plan look small. In addition, you get to take all of your business deductions with no threshold. Moreover, you are not taxed on dollar one like employees. Instead, you get to take all of your business deductions first before you pay any tax on your net income; and business deductions are NOT subject to any elimination under alternative minimum tax.

Finally, if your small business generates a loss, you can use that loss against any other form of income such as salaries, gains, pensions, interest, etc. If the loss exceeds all of this, you can carry back all business losses two years (three years in Canada) and get back up to the last two years of income taxes paid the federal government and most state taxes. And you get to carry over any excess losses up to 20 years! Thus, you never lose a properly documented business deduction as long as you are working your business like a business and not like a hobby.

Bottom line: I just can't fathom why anyone wouldn't want to set up a small business. In fact, they might make enough money to be able to quit their job and walk away from their boss, which is spelled backwards: double S.O.B." 

For much more detail about this, get my book, "Lower Your Taxes: Big Time." I have a whole chapter devoted to this. Every network marketer should get this book and give it to prospects.

By the way, the reason the government creates good tax laws for business is that they know that from small acorns come big trees. For example, Apple Computer didn't start with 200,000 employees; it started out of Steve Wozniak's and Steve Job's garage. Thus, passing good tax laws for business creates future jobs. [more...]