What keeps holding you back from starting your own business? If you are like many wage-earners, you may want to start a business but fear the taxman. Many people have a fear of business taxes and the IRS. And who would blame you? You have probably heard horror stories of businesspeople getting destroyed by the taxman and the IRS.
These stories are extreme examples of people who are using their businesses as a method of defrauding the government. Most business people do not use their businesses to engage in tax fraud. As long as that is not your intention, I wouldn’t worry about it.
In fact, you will pay far less to the government – legally – by having your own business, in comparison to what you pay as an average wage-earner. As an American wage-earner, you are paying an average of 28% of your income in taxes.
Trump Doesn’t Pay Taxes
I remember when Donald Trump was running for office, and he was asked how much he paid in taxes? His answer was something like, “I don’t pay taxes. I take advantage of all the benefits of conducting legal business in the United States and maximize tax credits for doing so.” (Editorial note: Even though this statement is in quotes, it is the author’s paraphrase.) During his campaign, many people were appalled that someone running for the highest office in the USA would admit (or even brag) about not paying taxes. Others, on the other hand, applauded him for his business savvy.
Pay Less in Taxes
Paying less in taxes is a real thing for business owners, which you may be one day soon.
If you are an average wage-earner, you are having taxes taken out of your check from the get-go, which means you are restricted from using this portion of your earnings for anything but your taxes. As a business owner, you can use these dollars to increase your tax savings throughout the year, because you are now entitled to various tax write-offs that you would not be entitled to as a simple wage-earner.
Business Tax Deductions
Even if your business is not effectively making a profit, you could be saving enough in taxes to plausibly pay zero in taxes by taking advantage of business tax deductions, which is a huge benefit to your fiscal outlook.
Transportation
Some examples of expenses you can write off against taxes include a percentage of your transportation costs, like gas and petroleum products, a portion of your housing costs can be written off, especially if you are working from home, which can account for about 20% of your living expenses, like rent, mortgage, and utility (electricity, gas, communications, everything but television) costs.
Food and Entertainment
I love having business meetings at restaurants. Keep business notes and receipts and deduct the expense of dining. Even though the IRS only allows you to write off 50% for business-related meals and entertainment, you are still ahead of the game if you are already going out occasionally.
Vacation and Travel
Vacations cannot be expensed as a tax write off, that is, unless the trip is business-related. If you can schedule your trip around a conference or trade show, you can write off a great deal of the vacation (I think the average is about 75% if you plan it right).
Household Furnishings
It is generally accepted that 15% of your household furnishings, including major appliances, can be deducted at a rate of 15% of what you spend here.
Equipment
Equipment, like computers, can be deducted, though if you use the same equipment personally, then you will likely only be able to deduct about 15% of your expenses here.
You can see, that if you were frightened about tax exposure for running a business, you can see that there should be no problem and it is highly likely that documenting and expensing out much of what is already your standard overhead, you will come for ahead by staring your own business.
Do have a bookkeeper/accountant on-board and double-check what you can write off and how to go about it safely and securely. You do not need a full-time accountant, just check around your local area, and find one that you can simply pay as you go and write off this expense as well.
You can see how easy it could be to end up owing no taxes at all, just like Trump.