Yesterday I talked about some tax implications of owning your own business. Let’s talk a little more about that.

But first a reminder: I am not a tax or legal professional and am not qualified to give advice on these subjects. I just know I have worked with my professionals and they have guided me well.

I STRONGLY encourage you to enlist the services of a competent CPA and attorney when launching and running your business. The cost of their services can reduce your taxable income because they are expenses too!

Having gotten the legal disclaimers out of the way…

Let’s talk about things things you are already paying for, with AFTER TAX dollars.

For example, if you made $50,000 as an employee you may pay up to half of that to the government in taxes. So, you make $50,000 and keep $25,000 to pay for everything you need.

If, however, you had a business, preferably a corporation of LLC (this is beyond the scope of this book) you would make $50,000, pay all the expenses for the business and THEN pay taxes on the remaining amount.

Let’s say your expenses were $30,000, much of what you may have paid anyway as an employee. That would reduce your taxable income to $20,000 ($50,000 – $30,000 = $20,000). This puts you in a much lower tax bracket and the $30,000 is never taxed at all. The government considers that money invested in  your business, which you did.

The bottom line:
Employee paid $25,000 in taxes and still has to pay for phone, health care, education, travel, etc.
The business paid maybe $5,000 in taxes and all those expenses are already paid for, with pre tax dollars.

Which sounds better to you?

And, oh by the way, you get to do what you love while earning that money!

So, if you ever wanted to have your own business this should be a great incentive to do it! THe government wants you to have a business, don’t you?

More on this tomorrow.

Leave a comment. I want to know what you think.