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There is a way to get bigger tax deductions that can dramatically lower or eliminate your federal tax liability. Starting your own small business opens up many tax deductions to you that you normally wouldn’t receive as a working individual. Don’t get intimidated; it is much easier than you think. Just focus on the word “small” in small business. Anyone with a favorite hobby, skill, or interest can easily turn them into a small business venture even while employed for someone else. There are two reasons to start your own small business this year: 1) additional tax deductions allowed by law for small business that reduce or eliminate your federal tax liability and 2) potential to generate a part time income (helpful during a slow economy). You can deduct something that you used for personal use if you are using it the majority of the time to run your small business. Throughout the year, I constantly question how I can change what used to be strictly personal expenses into small business tax deductions I can now take. This year I will be able to deduct things from my taxes that used to only be personal expenses: Internet service, cell phone, and an out of town trip. Since I used those things for running and growing my small business the vast majority of the time they are business deductions. The secret is to 1) look at everything you spend money on and ask if you would use that more often to run your business than for personal use and 2) work with an experienced counselor if you are unfamiliar with taxes. What used to be a hobby is now a tax deductionI have a friend who does a fantastic job in building decorative fireplace fronts. She started by creating them for her own home and loved doing it. She was concerned she would have to stop though when she ran out of rooms in her own home in which to put them. I suggested she start a small business and use her talent to build the fireplaces for other people. She could make money doing what she loved and as a small business owner she could start taking business tax deductions. For example, the mileage she put on her truck to buy materials was now a tax deduction whereas before it was not. Before, building these beautiful decorative fireplace fronts was only a personal hobby. Even with the potential to get a refund check back for the full amount you paid during the year there are some people afraid to use these legal tax deductions. They are afraid of the Internal Revenue Service and being audited. I was given a routine audit by the IRS once, and I thought it was a very pleasant experience. I had documentation to back up every deduction I had taken. The IRS agent had questions but was friendly and actually complimented me on being prepared for her with accurate paperwork that backed up my tax return! Every year I rely on my accountant to put the final return and paperwork together for the IRS and generally I am refunded nearly all the money I paid in federal income tax from my full time job. Check out the IRS website. They do a great job of pointing out deductions you could be taking! Our president wants you to do well One other point I make to those concerned about the IRS is the pro small business statement Barack Obama made on his website prior to the election. On his my.barackobama.com website he states “Small businesses are the backbone of our nation's economy and we must protect this great resource…..Helping American small business is part of our movement for change and the end of politics as usual.” Clearly, our new president encourages the pursuit of small business ownership as well. Learn about all the personal tax deductions available to you, but don’t stop there. Turn your hobby into a small business and pay less in tax this year. Get past your concerns about generating income. If you are someone who is working for an employer starting your own part time business is more about additional tax deductions for now. Anyone can do it, regardless of experience or resources, and you will enjoy utilizing all the tax deductions given only to small business owners. You can learn much more about starting your own small business and reducing your tax liability at BowmansMoneyCollege.com. Bowman’s Money College offers consulting and educational advice to individuals and families on personal financial matters such as starting a small business, writing and following a household budget, and rebuilding credit. For further information visit BowmansMoneyCollege.com or email mike@bowmansmoneycollege.com.
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It is the time of year when you start to see lots of articles about
taxes reminding us of the typical deductions we normally look for: daycare
costs, credits for going green, putting more away for retirement, and
giving to charity. Considering our slower economy, many of us have looked
for new ways to maximize income tax refunds. It seems like many big
companies got an extra helping hand this past year; is there help for the
rest of us?