Why a Home-Based Business Makes So Much "Cents"
By Sandy Botkin
Making money is only your first challenge. The second challenge—keeping those hard-earned dollars away from the tax collector—is often more difficult than the first.
There are many reasons why so many people are favoring a home-based business over a traditional business.
There is no commute (unless you have a really big home), no boss, little if any chance of lawsuits, much lower overhead, no employees (or few), and far fewer government restrictions. In fact, many of the laws that control large companies don’t apply to small firms with few or no employees. It is for these reasons, according to Entrepreneur magazine, that 95 percent of home-based businesses succeed in their first year and achieve an average income of $50,250 per year with many earning much more.
You can deduct, with proper documentation, your house, your spouse, and even children (by hiring them), your business vacations, your cars, and your food eaten with colleagues. You can also set up a pension plan that makes any government plan seem paltry by comparison.
The same money you are spending anyway, like eating out, going on trips and driving your car, the just as before. By having a home-based business, however, many of your expenses become deductible. With a home-based business, you can now deduct some of the expenses that you are incurring anyway.
Strategy: If you don’t have a home-based business, start one!
What if you have a loss?
In addition to all the benefits mentioned above, Congress will subsidize you while you are growing your home-based business. If your home-based business produces a tax loss in the first year or so, you can use that tax loss against any other income you have. It can be used against wages earned as an employee, dividends, pensions, or interest income—or you can use the loss against your spouse's earnings if you file a joint return.
If the tax loss exceeds all your income for this year, no problem. You can carry back the loss two years and get a refund from the IRS for up to the last two years of income taxes paid, or you can carry over the loss twenty years. You read it right. You can offset up to 20 years of income!
Here’s an example:
Mike earns $50,000 in a job with the government. If he starts a home-based business that happens to generate a tax loss of $10,000, he only pays tax on $40,000.
Tip: You can never lose a properly documented business deduction.
Strategy: Get LUCK—Labor Under Correct Knowledge.
Can You Succeed In a Home-Based Business?
Research has constantly shown that it is rarely the business that determines success or failure. It is usually the business owner. Why does one person succeed and another fail at the same business?
Two words — Knowledge and Action.
Some people want the benefits of having their own business, but they don’t take action. The result is business failure.
Then there are people who are always working. They take action all day but still fail. The reason is that they are not taking the correct actions, the knowledgeable actions which will bring the desired results. Again, business failure.
It’s like drilling for oil. If you set up a drilling rig in your back yard, it is going to fail at producing oil unless your back yard is in Texas or Alaska. The same rig in a good oil field will produce a gusher, because it was placed where oil was known to exist.
The point is that most people who get excited about starting their own home-based business do so without all the necessary knowledge. Consequently, many people quit before they acquire, through experience, the knowledge they need, without realizing that they are getting substantial tax breaks. This leads to another strategy.
Strategy: Learn to duplicate the success of others.
Duplicating the strategy of others is much quicker and more effective than going to the school of hard knocks. It is also known as modeling, which is well-illustrated by the way The McDonald Corporation blazed a trail to success that many have since followed.
In the early 1950’s, McDonald’s and other startup companies discovered that they could grow many times faster than the conventional firms through franchising. Instead of the company investing millions of dollars to build new stores, they let independent franchisees do it for them.
It seemed like a great idea, but at first no one figured out how to make it succeed on a consistent basis; therefore, the media attacked relentlessly and continually. New articles featured destitute families who had lost their life savings through franchising schemes. Virtually every state attorney general in the U.S. condemned the new marketing method. Some congressmen even tried to outlaw franchising entirely.
Over the years, however, Ray Kroc and his management team at McDonald’s developed a turnkey franchise business system that produced consistent results for virtually anyone who bought a McDonald’s franchise. The newfound success—from the system—turned public perception of franchising around. Today, virtually every franchise business models—to some extent—the franchise business system created by McDonald’s, making franchising one of the most respected ways of doing business in the world.
Modeling is simply learning what other successful people have done to achieve success in a specific area, and then doing the same thing. Someone said that “education is the shortcut to experience.” With modeling, you literally leverage your own learning with the collective years of learning through the experience of many others. Modeling the success of others saves both time and money and reduces frustration and stress.
The light at the end of the tunnel, for you and millions of others today, is the financial opportunity that starting your own business offers. If you have one going already, then make sure you are enjoying the many financial advantages to which your smart choice entitles you. The tax advantages alone can make a home-based business the single best financial move you could ever make.
SUMMARY
Job prospects are declining and will continue to do so. Promotional opportunities to management within major companies are also shrinking.
Traditional businesses have higher risks than those associated with home-based businesses. You will never get rich unless you reduce your taxes to the legal minimum.
- Everyone should have a home-based business immediately!
- You can never lose a properly documented business deduction. If necessary, you can always carry business losses three years or
- carry forward all business losses twenty years.
- Get LUCK—Labor Under Correct Knowledge.
SANFORD C. BOTKIN
Attorney, Certified Public Accountant, is Chief Executive Officer and Principal Lecturer of the Tax Reduction Institute.
Mr. Botkin has extensive financial and legal experience, including five years as a legal specialist in the Office of Chief Counsel for the Internal Revenue Service. He was also one of eight attorneys selected by the Internal Revenue Service to train new attorneys to the Internal Revenue Services Corporate Tax Division.
UNItogether has put up a web page with tools specifically to assist people with home based businesses. Go to Tax Helpers.
Ben Franklin once said, "Anyone who says you cannot buy happiness, does not know how to spend his money."