 |
Are You Ready To Beat The Taxman? Part 1
I’ve always been impressed with the idea of having my own business, even if it was part time, just for the tax benefits. I’m not sure if everyone knows all the great benefits you have with your taxes for a business.
If you’re an employee, than you’re getting the tax shaft. There’s really no other way to put it. Employees always pay the highest taxes because they don’t have the benefit of write offs. Does it matter that you have to fill up your tank to drive to work? No. Does it matter that you have to look presentable with a certain dress code? No. They cost money, but you’re still taxed on it. When you have a business, you are granted the power of the write off. It’s not free money or anything along those lines. You have the ability to eliminate a lot of what is considered taxable income. When it is written off, you won’t be taxed on that money. Pretty sweet. Another cool thing is when you pay taxes. As an employee, it’s taken off your pay check automatically. You don’t even get to touch the money. When you’re self-employed, you get all the money up front. I can spend, invest, burn all the money I earn and I don’t owe anything until April of the next fiscal year. General Business Expenses These are the expenses of doing business. You don’t actually have to register as a sole proprietor or any other legal entity, just make sure the bills are in your name. Expenses include…
These are all easy write offs. You just need to a recipe. Depreciation Assets These things aren’t considered expenses because they still have a value. That means you could resell them and earn something. You’ll have to check your local tax code, but they allow you to depreciate the value of items by a certain percentage each year. For example, in Canada, your computer and leather computer chair has a 30% depreciation value every year. If you bought your computer for a $1000, you could write it off $300 the first year. The next year the write off would be $210. Etc.
Doing Business Expenses Naturally this would include internet, but I’m talking about another part of doing business.
Most people don’t know this, but when you work from home, you’re allowed to actually write off part of your mortgage or rent. It has to be in your name though. Basically the “legal” way of doing it is figuring out the percentage of the house you use. If your office takes up 10% of your house, you get to write off 10% of the rent/mortgage. I also think in the US, you also can write off mortgage interest, but I’m not one hundred percent sure. The “bending the law” method would be being overly liberal with the amount of space you say it takes up. It may take up 10%, but you may bend the truth slightly to 25%. Obviously, a car isn’t needed for internet marketing… or is it? Driving to the bank to cash your check. Yep. Driving to internet marketing networking events. Yep. Okay, so there is a need for a car. It works the same as above. If you use it 10% of the time, you get to write 10% of the cost of running a car. That means 10% of payments, insurance and gas. You can bend the truth with this as well. You probably wouldn’t get away with bending it to 100%, though you could get away with that in an offline business. * In most countries, you are required by law to keep a log of the miles you drive for business. Beating The Tax Bracket You’re probably wondering why I’m talking about taxes now, at the end of August. Most countries in the world, besides Hong Kong and Ireland(I think), have progressive tax rates. This means the more taxable income you make, often means you’ll have to pay a higher tax rate. The reason I’m talking about taxes now is to beat the tax bracket. You have to anticipate which bracket you’re going to fall into. Adding business expenses before the fiscal year ends will serve you much better than writing the government a check instead. Your tax bracket will be determined by where you live. Here is how the Federal Tax Rates look in Canada.
Obviously, if you’re an employee you don’t have tax write offs. If you make $50,000 for the year you’ll have to pay $8397.54 no matter what. It’s automatically taken off your pay check and there’s nothing you can do about it. * Please note there is provincial income tax too, which is also in brackets. Now let’s say you’re going to make $50,000 for the year after the "true expenses" of the business. When I say "true" I mean things you wouldn’t normally pay for. That means domain names, hosting, clickbank fees if you launch your own product, outsourcing, etc. You’ll pay the same amount of taxes as the employee if you don’t do anything about it. I didn’t mention internet as an expense because I would be paying for internet regardless if I did business. Let’s add in extra expenses that benefit my life regardless of the business.
That totals $5440. That would make your taxable income $44,560. Your total tax burden without actually spending more, just adding in the extra write offs you are legally allowed to do, would be $7200.74. The difference $1196.80. That is how much more money you’ll not have to pay to the government in taxes since you took advantage of some write offs that you’d probably pay for regardless of the business. Could Getting More Write Offs Be Good?? Let’s say you’ve had your eye on the most kick ass computer on the market. It’s a beast, but it has a hefty price tag. It’s $3000. The write off the first year would be $900. When you do the new numbers with taxes that will give you a discount of $200. What that means is that you pay $3000 for it, but you save $200 on taxes. Net cost is $2800. Doesn’t seem worth it, but when you can obviously attach more write offs you normally get in your life, the better off you are. This is a really long post. A lot longer than I anticipated. I’m not even done yet. Part 2 will be tomorrow. August 26 2008
If you enjoyed this post, make sure you subscribe to my RSS feed!
|
Affiliate Marketing Xpert was created for people that want to live the Four Hour Workweek lifestyle.
Categories
|
|
|
|