When we talk about money and investing the focus is often on how to make more, but as Ben Franklin famously stated, a penny saved is a penny earned. Because of this, an important component to smart money management is reducing its outflow. Over the course of our lives our largest expense is not our house or the sum total of our cars and their expenses. The largest expense for most Americans comes in the form of taxes.
When we understand this and also understand that there are opportunities to make more money while reducing our marginal tax burdens, seizing these opportunities becomes obvious.Taxes are very complicated and there are numerous taxes that involve almost every type of transaction.
But you don’t need to be a tax lawyer or CPA to gain access to to various tax incentives. For example, if you start a small business it is not expected to make a profit immediately because there is often overhead and time required to establish a market share.
However, your capital expenditures are tax deductible, reducing the impact of spending money to start your business. These write-offs can extend to travel, client meetings and entertainment, home office, employee expenses, business expenses as well as acquisition of capital and resources to run your business.And the threshold for a sole proprietor to exceed the standard deduction is only at $6300. Everything over that decreases your standard tax liability.
It’s being discovered that people are often happier working from home in the digital economy. This is becoming true in all corners of our world. Education and training is increasingly online through MOOCs (massive open online courses) and so is work via telecommuting. These endeavours have tax benefits, but people must know what they can write off working and training from home. Working from home can convert a space you already use into a tax write off. For your home office, you can determine the square footage of your office, it’s percentage of area to the rest of your house and write off the proportionate amount of utility costs and upkeep. This can build into your home a financial offset that most people don’t take advantage of.
Similarly, your car can provide some tax relief. The miles you drive to conduct business are also deductible. And you can do this by providing receipts of car expenses and a ledger of miles driven or take the standard deduction for those miles.
These write-offs take the sting out of startup costs and help business owners to make the best decisions about what’s right for them and not merely what’s least expensive. But new businesses can optimize their spending when they have a knowledge of how the write-offs work. This can aid in planning and reduce the stress of spending.
These businesses are easy to get into because you don’t have a lot of startup expense and you can start fast. The problem is that we generally don’t like selling and that’s particularly true when it comes to our friends and family. But starting a simple business gives you the opportunity to begin writing off expenses. Once you have bypassed the standard deduction, your business has reduced your tax burden, often while providing you with new equipment or allowing you to entertain.
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0 thoughts on “A Tax Penny Saved Is A Tax Penny Earned #WMWeek17”
Glad to see some tax coverage here. It’s an expense too many of us don’t plan for, meaning we’re surprised when we get a big tax bill. Or we overpay during the year because we withhold too much from our paychecks, depriving us of money we could use to pay bills, including paying off high-interest credit card balances. I admit that I’m a tax blogger/journalist, so this is dear to my heart, but it should be considered by all of us.