Let’s talk about How To Increase Tax Savings Through Categorizing Business Expenses.
Did you know the biggest drain on your wealth is the taxes you pay?
According to Tony Robbins in Money Master The Game, it’s very common to pay upwards of over 50% of your hard earned money in federal, state, sales, general excises and transient taxes to name just a few.
Can you imagine what your life would be like if you had double the money?
Here’s a key to Financial Freedom I learned back in 2008.
I could start a business and while learning valuable sales and marketing, product and customer service skills – I could also save thousands of dollars on my taxes.
It’s because the start up expenses from your business oftentimes create a loss which passes through and reduces your taxable income.
This post is going to explain it to you real easy but before I do that I want to tell you what I did with my first tax refund from my internet business.
I cashed it out in 100 bills, it was $3,000.
I rolled around in the money, took pictures with it, and just enjoyed having that much cash on hand.
Then I put it back in the bank and followed my Financial Freedom budget.
That money gave me hope.
It opened a door.
It made me realize that I could do this.
I could become financially free.
Now I own 2 businesses and 2 properties.
I didn’t know anything about business when I first started.
I owned no property.
But this one step showed me that I could do it.
You can do this, and if you are going to create a great business you have to start somewhere, just START.
Take this key and make it work for you.
Learn what I share with you here and take yourself seriously.
You matter and you can be financially free!
This post explains what is taxable income, how can you calculate income and expenses in your home business.
It also contains a valuable list of categories that my accountant gave me so that I know how to break down my business expenses.
I’m actually editing this blog and sharing it because every year I reference back to it during tax time.
I recommend you speak with your accountant to update yourself of tax law changes, and updates.
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Taxable Income
The first important concept is TAXABLE INCOME.
That is the number that the IRS uses to figure out how much tax you owe.
The higher your TAXABLE INCOME, the more you may owe in taxes.
Most people who have jobs will have their estimated tax deducted automatically from their pay checks (called withholding).
At the beginning of the year when they do their taxes, they find out if what they already deducted and paid was enough, or if they have to pay more or get a refund.
They or their accountant takes their total wages, tips, commissions, rents and other income and adds it altogether.
This is your taxable income.
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Personal Deductions
You may or may not know that on your taxes you can claim personal deductions.
You subtract your personal deductions from your Taxable income BEFORE you figure out how much you owe in taxes.
Personal deductions will reduce your taxes because they reduce your taxable income.
Personal deductions include the standard deduction and also some other important ones.
Health savings account
Retirement savings like 401K and traditional IRA
Unreimbursed work expenses such as meals on the road, car repairs and maintenance, parking
Moving expenses
Qualified child or adult dependent care expenses
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Small Business Income and Expenses
A small business can reduce or increase your taxable income.
If you have a small business where income and expenses pass through to your personal tax return, then your business losses will reduce your TAXABLE INCOME.
I believe this is why most home based business owners will stay in business and stick it out until successful.
They make back what they invest in their business in their tax savings.
What you need to give your accountant is your business income (your total sales).
Then you need to categorize these important business expense deductions:
Wages
Rent
Taxes and Licenses
a.Payroll Taxes
b.General Excise Tax
Depreciation Expense
Employee Benefit
Bank Charges
Dues & Subscriptions
Gifts
Insurance
a.Liability
b.Disability
Legal & Professional
a. Legal
b. Accounting
Office Expense
Outside Services
Parking & Tolls
Postage
Telephone
Travel
a.Airfare
b.Lodging
c.Auto
d.Travel Meals
e.Other
Professional Development
Auto & Truck Expense
a. Gas
b. Repairs & Maintenance
c. Insurance
Internet
Merchant Fees
Equipment Expense
Meals & Entertainment
Marketing/Advertising
Supplies
Storage
Uniforms
Utilities
Conclusion
I actually keep this post bookmarked to keep track of the categories of expenses that my accountant wants me to use on my deductions.
Providing value and ways to help others become financially free is what I LOVE to do =)
If you want some support in your Financial Freedom goals, then CLICK HERE, watch the free video and get started in our mastermind program.
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