Since I do FREE! CPA tax reviews of past tax returns, I get a wide of assortment of returns to review. If you’ve got a business, chances are I can save you some tax money. In some cases, I can save a lot of taxes.
The one group that I just can’t save much for, though, are the toughest for me to say “no” to. That’s the hardworking people who work as W-2 employees only. In some cases, they might have real estate investments, but the IRS has put some very stringent rules in place so the tax breaks there are largely gone.
That means there is just one way to really save on taxes these days. And that’s the 1st of the 5 steps:
( 1 ) Start a business. Obviously there is a lot that goes into deciding a business venture – marketing, fulfillment, product, sales, administrative support, etc.. And should you buy a franchise, sell on eBay, join a MLM, start a service business, etc? There are thousands of possible choices.
I’m not talking about any of that here. I’m just saying if you start a business, no matter how big or small, you’re going to have better tax breaks. Period.
One of the simplest ideas might be to take what you’re doing as a regular W-2 employee and start doing it as an Independent Contractor. There will be some differences to how you fulfill and who has control (ie, you do now, not your boss) but the tax savings could be huge for both you and the guy you’re working for. Plus you have something that you might be able to expand.
(2) Pick the right business structure. Too many people just go with the easy default: Sole Proprietorship. That means there is no business structure and that means more risk and more tax.
( 3 ) Look for your business deductions. There is a change in mindset that occurs when you start your own business. You need to start asking yourself “How could this be a business deduction?” Not everything will, but I bet a lot of things will become deductions if you think about the “how can I” questions first.
( 4 ) Good record keeping. In the beginning, you’re just trying to figure out the business and the last thing you want to do is record keeping. Trust me, I understand. i’ve started plenty of businesses. But you want to keep good records along the way. If you don’t, you might miss out on some great deductions and possibly put yourself at risk legally.
( 5 ) Prepare your tax returns right. None of the tax planning means a thing if your tax return isn’t done right. Miss this step or, worse yet, file your returns so that it’s a big audit risk and you’ve got problems.