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My family never owned or ran businesses, so I'd like to know what are the many ways business owners use their businness to their advantage when it comes to minimizing income taxes personally and in their business?
My family never owned or ran businesses, so I'd like to know what are the many ways business owners use their businness to their advantage when it comes to minimizing income taxes personally and in their business?
By making less money relative to their costs, same as any individual.
Businesses have the advantage of being able to write off almost everything that contributes to business costs - rent, utilities, services, vehicle leases, employee costs, advertising, etc. I can't think of a category of expense or cost that can't be deducted against revenue. (Even things like property taxes or assessments can be deducted against federal and most state income taxes.)
So from there it's a matter of spending as much of your revenue on things that are a net gain for the business, like facility improvements and better employees and business promotion. The money is still "gone" but significant value is returned for it, and it becomes nontaxable.
If I have a business makeing 56000 revenue...I can contribute it all to 401k (as employer and employee) since that was the 2019 limit and that would leave me with zero income taxes to pay (assuming I had no other revenue)?
If I have a business makeing 56000 revenue...I can contribute it all to 401k (as employer and employee) since that was the 2019 limit and that would leave me with zero income taxes to pay (assuming I had no other revenue)?
I'm not a tax lawyer. And retirement plans are bound up in many ways - a company plan has to limit the contributions of "highly compensated members" to a ratio of what the general contributions are, for example.
As a sole prop or something like it, you can do pretty much anything allowed an individual, including making maximum 401(k)/IRA contributions. Those funds do become untouchable, of course, without penalties and likely higher taxation.
That's about the only way you can put income, as money, out of tax reach. Everything else involves an expenditure of some kind, and spending money just to avoid paying taxes on it can be a really stupid spiral to get caught in. I've known businesses with rabid tax hatred who would spend and spend on things like office space and furnishing and so forth, and then end up broke because they had no cash reserve. Office furniture etc. sells for about 10 cents on the dollar, assuming it's top-grade stuff.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Originally Posted by CaptainNJ
receive payment in cash and don't report it as revenue
Legal or not this happens a lot and in most cases is not likely to be discovered. In a business-to-business
situation the customer often asks for a lower price if they pay cash, both sides are aware that it will not be documented. There is also the barter system, not reported as income. For example, your tree service removes a big dead tree from my house, and I do a repair to your truck. Then there is the write-off for materials and supplies. Buying wholesale for the business, but take some of the purchases to use at home, all of it deducted as as business expense. Again, the risk is low for most small mom & pop businesses where the gross sales are less than about $250,000/year so the IRS is going after "bigger fish."
I'm not a tax lawyer. And retirement plans are bound up in many ways - a company plan has to limit the contributions of "highly compensated members" to a ratio of what the general contributions are, for example.
As a sole prop or something like it, you can do pretty much anything allowed an individual, including making maximum 401(k)/IRA contributions. Those funds do become untouchable, of course, without penalties and likely higher taxation.
That's about the only way you can put income, as money, out of tax reach. Everything else involves an expenditure of some kind, and spending money just to avoid paying taxes on it can be a really stupid spiral to get caught in. I've known businesses with rabid tax hatred who would spend and spend on things like office space and furnishing and so forth, and then end up broke because they had no cash reserve. Office furniture etc. sells for about 10 cents on the dollar, assuming it's top-grade stuff.
Yeah I'm just wondering what kind of solo small business is worth the squeeze if my take home pay right now is about 4500 a month (after maxing out 25k 401k plus IRA and 3500 HSA)like only 45 hours a week and I don't manage anyone.
What kind of business...How much revenues and what my expenses including taxes would look like is what interested in tthinking about. Real life income statement examples would be nice to see. And I would want to take advantage of the 56k IRA limit to reduce business revnues
Within reason, a small/home business can be used to pay for things like broadband, cell phones, computers, printers and so forth - acquisition and upkeep. it's best to show at least a modest profit, and DO NOT try to write off a home office unless you can show that the business is primary and substantial.
And, just maybe, it's pointless to fret about earning extra money because some of it will go to taxes. Earn. Pay. Enjoy.
Yes, theft is always an option. Investing in solid teak desks might work out better.
do you own a business?
the above isnt really an option for me. we dont work with cash and we do everything by the book; but a lot of small businesses collect cash and dont report it all as revenue.
taxation is theft so i would view the above scenario as theft reduction.
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