In a previous article titled “America’s Economic Emergency; The coming recession and what to do about it” I mentioned briefly how much you can save in taxes by just owning a home based business.

I have been getting many responses and requests to go a little more in depth about the tax advantages available to business owners, so I hope this will give every one a little insight into how much you can save in taxes by owning your own business.

First let me say that I am not a tax professional, accountant or lawyer and this article is for information and research purposes only. For specifics on the current tax laws or anything I mention you should consult your tax professional, accountant or lawyer.

Now that we have that out of the way let’s get into it.

I am a business owner; I have owned various businesses since I have been 15 years old, so I speak from experience, when I tell you that the tax advantages of owning a business are great. It is one of the reasons that I advocate starting a home based business. Not the only reason but if you find your current tax burden a little too much to bear, then you should really pay attention, and start a business.

If you want a few ideas on businesses you can start right now go to http://www.AceEnterprises.ws

The tax laws and the taxation system were created for two different types of people. I know you are thinking the rich and the poor right. That is partially correct but not specific enough. The tax laws and the taxation system were created to separate the business owners from the employees. With the advantage going to… you guessed it the business owner.

The reason you are thinking rich and poor beside what you hear on the news and from various politicians, stems from the fact that most rich people happen to be business owners.

Now I know that your are thinking that this sounds a little unfair, but who told you that the world was fair?

Let’s go over a few of the ways that the tax laws differ for employees and business owners.

Employees are taxed on their gross income in other words income before any expenses. What this means is that before you pay your rent, utilities, cable, phone, buy your clothes, gas and food, Uncle Sam gets his.

Business owners are taxed a little differently, on their net income, which is what is left after expenses.

So in contrast to employees the business owner gets to pay rent, utilities, cable, phone, buy clothing, gas and food, and then if there is anything left, Uncle Sam gets his.

This is a simplified example there are a lot of other factors that go into calculating what the business owner will pay, and to explain them all would not only be out of the scope of my expertise but would take entirely too long.

My thing is to give you an idea of what can be done, just to let you see the possibilities.

Let’s take the simplified version a little further and see how this works.

Let’s assume an employee and a business owner, made $5000 this month and is taxed at 20%.

That would mean they both owe $1000 in taxes right, wrong.
Only the employee would owe $1000 the business owner would owe less.

You would first have to look at the expenses of the business owner. Let’s say that expenses for both were $3000 per month. That would mean that the business owner would only owe $400 big difference.

Remember that the employee is taxed on gross income (before expenses) and the business owner is taxed on net income (after expenses), so side by side it looks like this.

Employee: $5000(gross income) x 20%( tax burden) = $1000

Business owner: $5000(gross income) - $3000(expenses) = $2000(net income) x 20% (tax burden)= $400

Like I said this is a simplified version but imagine these numbers when calculated yearly, it can mean huge savings (if you are a business owner) and since I like clichés so much the one that comes to mind is a penny saved is a penny earned…or a few thousand dollars.

The reason there is such a difference is because of the write offs that are allowed for employees and the ones that are allowed for business owners.

Now like I said before and I will say it again I am not a tax professional, an accountant or an attorney, but here are some of the write offs you are allowed to take as a business owner. With these write offs you could save (put in your pocket) $3,000 - $15,000 per year.

Car-58 cents per mile at 12,000 miles per year that is $6,000 in your pocket, plus tolls

Vacation/Travel- 50% of all travel expenses, If you own a travel business then it is 100%

Home office- If you run a home based business,( which I strongly encourage) then a portion of your mortgage/rent, utilities etc. are business expenses.

Children- How about your children actually saving you money. If you have a home based business hire them. Children between the ages of 7-18 can be paid up $5,350 per year. $5,350 per year per child can be written off because they will be employees of your business. I bet you wish you had more now.

Computer/ Office Equipment- Home computer, Laptops, Printers, DVD player, Shredder, etc.

Office Furniture/ Office Supplies- Desk, Chairs, File cabinets, Printing Paper, Ink, Pens, Pencils, Books

Cell Phone/ Home Phone- If you have your cell phone number listed as your business number on business cards etc. and you talk business on your cell phone, a portion of your home phone, unless you have a direct business line.

Education- Any class/ Certification, Home Study Course, Business books, Trade Magazines related to your business, any thing to further your business education.

Internet Services- Vital to all businesses, especially web-based businesses.

Food- Business lunch/ dinner. Even a portion of the food you buy for your home if you own a home based business and entertain clients in your home.

Cable bill- this can be applied to almost any business, some examples: CNBC, MSNBC, the Bloomberg Channel for all businesses, Travel Channel and Weather channel for travel businesses, Noggin, Nickelodeon, or Disney if your business is for children
Auto channel; car business, Food network; restaurants and caterers, ESPN; Sports memorabilia, you could keep going.

All together there are over 145 different write offs, that you can use (if you are a business owner) to save (put in your pocket) $3,000 to $15,000 per year. Once again I will say consult you tax professional, accountant or attorney before you go crazy with your pen.

That’s not all you can do. As an employee you have no control over when you pay your taxes or the period of time they use to calculate your income, it is taken out of your paycheck automatically, and you are taxed on your wages from January to December.

As a business owner you choose when you pay whether quarterly, semi-annually or annually and what 12 month cycle that will be used to calculate your profits based on the fiscal year of your choosing. Don’t like the January to December cycle, how about April to March how about you start in December and end in November, it’s all up to you.

I hope you see the light and decide to start a business and stop letting Uncle Sam take so much of your hard earned money, and if you don’t start a business you can’t say you didn’t know because I told you.