In the opinion of many, accounting is an occupation for conventional minds that remain safely in the box. Despite the profession’s stodgy reputation, I have found that this perception doesn’t square with reality.
My first hint that accounting might involve more than meets the eye was when I heard that the Rolling Stones had failed to make money on one of their world tours. Even though I was a teenager at the time, I couldn’t help but feel incredulous. Seriously, how could the coffers be empty when the arenas runneth over?
As it turned out, this was my first exposure to tax avoidance through creative bookkeeping. In addition to realizing that accounting can actually require a special kind of ingenuity, my eyes were opened about income taxes. Put another way, I found out there is a lot of money to be saved on them. In case you are interested in getting in on tax savings, here are some ideas:
• Home business: The average person’s key to minimizing income taxes is starting a home-based business. Even if you are employed, you should consider this option. Deductions that are unavailable for wage earners become attainable if you can do some work on the side. By hanging out your own shingle, your house, car, entertainment, and vacations become prime candidates for tax deductions. In addition to shielding you from tax liability, another benefit from operating out of your home is that overhead expenses are kept to a minimum.
• Potential: The potential tax payoffs depend on your life situation. For starters, your benefits are directly proportional to your tax bracket. If you are in a low bracket, you will not profit as much as someone of upper income. Also, if you don’t have many deductions to claim like home mortgage interest, I probably wouldn’t recommend your own business. Because exceeding the standard income tax deduction will be even more difficult now that this amount is almost double what is was in previous years, any tax advantages probably won’t materialize. However, if you have enough deductions to itemize already, starting your own business can be a fruitful option.
• How it works: When minimizing taxes, a common pitfall is spending more than you ordinarily would just to get a deduction. Doing this only leaves you poorer. To truly save money, the trick is to conduct your business in a way to make your normal living expenses tax deductible. For example, if you go out to eat on a regular basis, there are ways to make these costs deductible. In addition, by using a portion of your home as an office, you can deduct some of your housing expenses. Similarly, transportation expenses and vacations can be handled in the same manner. Again, the key is to keep the dollar amount of your expenses the same as they were before you started your home-based business. From there, there are particular actions to take so you can claim these outlays and properly document them.
• Types of businesses: If you are at a loss on what type of business to start, there is an abundance of candidates. If you lack a skill or hobby you feel confident about, there are hundreds of network marketing companies like Mary Kay, Amway, and Young Living. These companies have done a lot of legwork and can help you get the ball rolling quickly. If selling products in person makes you uncomfortable, there’s always eBay. The point is to find a product or service you believe in. In my opinion, if you believe in what you’re doing, that is more than half the battle.
• For more information: If reducing your taxes through a home-based business intrigues you, I recommend the book “Lower Your Taxes Big Time!” by Sandy Botkin. The author meticulously spells out how to follow the rules in a step-by-step and easy-to-understand manner. It’s especially handy for would-be entrepreneurs who are unfamiliar with this subject. In addition, should the sophistication of your businesses grow, there are chapters that give guidance on topics like fringe benefits and incorporation. If you follow the instructions, you can feel confident that you are following the law and getting the lowest possible tax bill.
Hopefully, you can use some of the ideas in this article to make money and save on your tax bill. If you aren’t interested in a home business, all is not lost. Remember that any money you save through Savvy Shopping is always tax free and makes the bargains even sweeter.
Of course, there are multiple ways to reduce taxes and the Savvy Shopper would love to hear about them. Please visit and “Like” our Facebook site (Click www.facebook.com/LubbockSavvyShopper or log on to Facebook and enter “Lubbock Savvy Shopper” in the search tool) or write us at [email protected] and let us know about your ideas.
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SEAN FIELDS is the A-J’s Savvy Shopper. Read his columns Sundays and Wednesdays. Email him at [email protected], like his Facebook page at Facebook.com/LubbockSavvyShopper, or see previous columns and deals at lubbockonline.com/savvy-shopper.