In my previous posts I’ve been looking at ways you can plug up holes in your spending, to boost your income without scrimping. Another way is by incorporating yourself.
If you haven’t set up a legal entity, such as an LLC or S Corp, you’re overpaying in taxes. Business owners get tons of tax breaks that employees don’t. In fact, there are 5,900 pages in the tax code and of those, roughly 300 are for W-2 and 1099 employees. The other 5,600 pages are ways you can get tax deductions through business ownership.
It doesn’t matter if you have employees or an office. Remember: In the 5 Day Weekend lifestyle you’re going to have some form of a business. Set up an entity as quickly as possible, and coordinate with a CPA to take advantage of the following possible deductions and many, many more:
- Home Office Deduction: Do you make phone calls or use a computer? Make a room in your home a dedicated workspace for your business and deduct it as a home office expense.
- Phone, Internet and Utilities: You can deduct the phone, fax, and internet expenses associated with your business, as well as a percentage of utilities.
- Meals and Entertainment: When you’re traveling for business or meeting with a client, you can deduct your meals. Certain entertainment expenses are also deductible.
- Car: Any time you drive for business purposes you can deduct your expenses.
- Travel: Extended travel for business purposes is tax deductible.
- Education: The cost for any education related to maintaining or improving your skills for your business is tax deductible.
- Hire Your Kids: IRS rules allow you to pay your kids for specific tasks and deduct what you pay them.
- Use of Your Home: You can rent your home to your business for 14 days or less to host functions for employees, vendors, or employees and take the tax deduction for the business without claiming it as personal income.
Obviously, the tax code is more complex than these simple descriptions, and you’ll want to use a qualified CPA to take advantage of all deductions and to stay within the rules.
Which type of entity you need depends on a variety of factors, including tax benefits, liability protection, business succession and exit strategies, and future financing and investment criteria, just to name a few. For some who need a simple structure and flexibility in a partnership, an LLC can be effective. For other, more sophisticated businesses, the need to structure a business based on tax planning can be of primary importance. Partnerships, limited liability companies and small business corporations (or S Corps) give business owners a variety of options for tax planning.
For large operations, despite potential negative tax implications or higher maintenance fees, sometimes the standard C Corp is the best option. Consult with an attorney to choose the right entity for your purposes and needs.
In my next post, I cover the importance of using a competent CPA to maximize your tax deductions. In the meantime, I’d love to hear form you: have you considered incorporating? What kind of business are you? Thank you for sharing.
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