Do you want to pay less in taxes? Would you like to keep more of your hard earned money?
What have you changed this year to accomplish those goals?
Are you doing the same things you have done for the last several years and are expecting a different result?
That is the definition of insanity! Allow me explain to you the difference between tax preparation vs. tax strategies.
Tax preparation is when you put together your tax information about your taxes and either you prepare them or you submit them so your taxes can be prepared. This is what most people do when it comes to taxes.
Tax Strategies consist of pro–active planning for you and your tax professional’s part to not only look for tax deductions and write offs, but to systematically prepare your business and personal income to be as tax efficient as possible.
Tax Preparation costs you around $2,000 to $3,000 yearly and when you look at the cumulative effect of this over a 10 year period, then it has cost you over $20,000 to $30,000. I have witnessed tax returns that have cost people over $50,000 every year and they have payed out approximately $500,000 to the IRS because they lack proactive tax reduction strategies.
What are tax strategies and why do we miss them? Tax strategies are right in front of us, however most people shutdown when thinking about taxes unless you are a CPA. Here is how taxes rate as a popular pastime: • Trips to the Dentist – 29 percent • Doing Taxes –26 percent • Public Speaking – 24 percent • Cleaning the bathroom – 16 percent • Dinner with the In–laws – 5 percent
Source: Turbotax, Quicken.com, April 2005
When dinner with your mother–in–law ranks higher then doing your taxes, you know you need to see an attorney. CPAs are the exception to this. I love doing taxes and have a great relationship with my mother–in–law.
Tax strategies are even more necessary and crucial today, than they have ever been in our history of taxes. Most taxpayers are sick and tired of being taxed to death by the IRS. Everyone wants to pay less in taxes but they just don’t know how. Understanding what tax strategies are will get you moving towards paying less to the IRS and keep more of your money. Keeping more of your money to invest and pay yourself is our strategy concept.
The first step is the education on taxes. Taxes are based on taxable income and the tax bracket you fall into after income minus deductions. See below two example of tax brackets (Married & Single)
Married, Filing Jointly (MFJ)
| Tax Income: | Tax Rate | Up Front Tax |
| $0–$15,650 | 10% |  |
| $15,651 – $63,700 | 15% | plus $1,670 |
| $63,701 – 128,500 | 25% | plus $9,350 |
| $128,501 –195,850 | 28% | plus $26,637 |
| 195,851 – $349,700 | 33% | plus $46,741 |
| Over $349,700 | 35% | plus $100,894 |
| Tax Income: | Tax Rate | Up Front Tax |
| $0–$7,825 | 10% |  |
| $7826 – $31,850 | 15% | plus $835 |
| $31,851–77,100 | 25% | plus $4675 |
| $77,101–$160,850 | 28% | plus $16,750 |
| $160,851– $349,700 | 33% | plus $46,754 |
| Over $349,700 | 35% | plus $100,894 |
I was attending my son’s basketball game and I saw another dad with a high–tech telephoto camera. I asked him, what was the name of his business. He answered “what business”. He went on to tell me how he enjoyed taking photos of his kid’s team, and how the action photos were the reason for purchasing the high dollar camera. He also stated that his kid played sports year around. I asked if he was selling pictures via the Internet so we could view the shots he had of my kid. He stared at me with a glazed look. I then proceeded to tell him about how he could open a small business photographing kids sports, and he would be able to partially deduct his related business and activity expenses associated with his high–end camera and his kid’s sports.
This is one of those tax strategies that is missed all the time because the activity is thought of as only being a personal expense and not a business one. Consequently, the opportunity to turn what was once a personal expense into a pro–active tax strategy is missed and causes the taxpayer to pay more tax dollars to the IRS. Other home base business tax strategies that can be implemented are as follows: • Photography R You • World Ventures – Travel Business • Homemade Gourmet – Food Business • Mary Kay, Avon, etc. • Melaluca – consumer products • Cabi – Women Clothing • Creative Memories – Scrapbook – family photos and albums
The intent to make a profit and materially participate are the only requirements to creating the business. So what does this mean to you? Participate in the business and do it often enough to try to make a profit. Consequently, this qualifies as a legitimate business. Take the first step by setting up your business and keeping track of reasonable related business expenses.
