Jim Belden's Blog

A few times a year I go stay with some close friend for a few days and each time the same conversation comes up. One of my friends is in the military and has been for close to 20 years. His parents were in the military as well so he has limited exposure to being an entrepreneur or owning and running a business. He has a neighbor that stops by who is very entrepreneurial and runs his own business full time. Somehow the topic of taxes comes up and my friend in the military is just amazed, shocked and sometimes even seems offended at what the business owner is able to write off in taxes. All of the deductions that the business owner takes are totally legal and are in place to help promote business and business growth, but to those that are not familiar with tax laws related to businesses it can be somewhat of a surprise.

Let me start off by saying I am in no way qualified to give tax or legal advice and you should definitely consult an expert to learn more about taxes and setting up your business structure. If you do decide to start your own business, depending on how you structure it the tax savings can be significant. Keep in mind that you need to be in business to generate revenue and run it like a business. If you don’t eventually bring in revenue than the IRS could see the business as a hobby and you can lose the deductions that would otherwise be so beneficial.

So, what are some of these deductions that you can take if they are justifiably related to, and used in, your business.
1. Office equipment such as computers, printers, furniture, phone service, cable or DSL if used for the business, office space, office supplies and other things office related.
2. Meals, entertainment such as plays, sporting events, concerts and even vacation travel if half is justified for business.
3. Education including extension classes, seminars, trade shows and coaching and consulting.
4. Hiring and/or leasing from family members. This can even include hiring your own kids or leasing property from relatives. (This must be at fare market value to survive a possible audit).
5. Auto expenses such as depreciation on a car that is used in the business.
and so many other things.

Since businesses can pay taxes at a much lower rate than an individual, the tax savings can be enormous and if the business owns everything you could realistically get your personal income taxed to a very small amount. This is part of the reason you hear that the rich don’t pay taxes.

Obviously you have to work with your tax professional to be safe and understand the implications of taking these tax exemptions, but used correctly, and in accordance with the law, by owning your own business and having it structured properly you could save thousands, or even tens of thousands, of dollars per year.
Some great resources I can recommend include Lower Your Taxes – Big Time! by Sandy Botkin and 422 Tax Deductions for Businesses and Self Employed Individuals by Bernard Kamoroff. I would also recommend the first few books in the Rich Dad series, Rich Dad’s Classics by Robert T. Kiyosaki.

Given what I have learned about the tax benefits of owning a business, I’m amazed that everybody doesn’t have some kind of small business. Why not keep more of your money and start that small business today.