How To Increase Tax Savings Through Categorizing Business Expenses

How To Increase Tax Savings Through Categorizing Business Expenses

Let’s talk about How To Increase Tax Savings Through Categorizing Business Expenses.

Did you know the biggest drain on your wealth is the taxes you pay?

According to Tony Robbins in Money Master The Game, it’s very common to pay upwards of over 50% of your hard earned money in federal, state, sales, general excises and transient taxes to name just a few.

Can you imagine what your life would be like if you had double the money?

Here’s a key to Financial Freedom I learned back in 2008.

I could start a business and while learning valuable sales and marketing, product and customer service skills – I could also save thousands of dollars on my taxes.

It’s because the start up expenses from your business oftentimes create a loss which passes through and reduces your taxable income.

This post is going to explain it to you real easy but before I do that I want to tell you what I did with my first tax refund from my internet business.

I cashed it out in 100 bills, it was $3,000.

I rolled around in the money, took pictures with it, and just enjoyed having that much cash on hand.

Then I put it back in the bank and followed my Financial Freedom budget.

That money gave me hope.

It opened a door.

It made me realize that I could do this.

I could become financially free.

Now I own 2 businesses and 2 properties.

I didn’t know anything about business when I first started.

I owned no property.

But this one step showed me that I could do it.

You can do this, and if you are going to create a great business you have to start somewhere, just START.

Take this key and make it work for you.

Learn what I share with you here and take yourself seriously.

You matter and you can be financially free!

This post explains what is taxable income, how can you calculate income and expenses in your home business.

It also contains a valuable list of categories that my accountant gave me so that I know how to break down my business expenses.

I’m actually editing this blog and sharing it because every year I reference back to it during tax time.

I recommend you speak with your accountant to update yourself of tax law changes, and updates.

  1. Taxable Income

    The first important concept is TAXABLE INCOME.

    That is the number that the IRS uses to figure out how much tax you owe.

    The higher your TAXABLE INCOME, the more you may owe in taxes.

    Most people who have jobs will have their estimated tax deducted automatically from their pay checks (called withholding).

    At the beginning of the year when they do their taxes, they find out if what they already deducted and paid was enough, or if they have to pay more or get a refund.

    They or their accountant takes their total wages, tips, commissions, rents and other income and adds it altogether.

    This is your taxable income.

  2. Personal Deductions

    You may or may not know that on your taxes you can claim personal deductions.

    You subtract your personal deductions from your Taxable income BEFORE you figure out how much you owe in taxes.

    Personal deductions will reduce your taxes because they reduce your taxable income.

    Personal deductions include the standard deduction and also some other important ones.

    Health savings account

    Retirement savings like 401K and traditional IRA

    Unreimbursed work expenses such as meals on the road, car repairs and maintenance, parking

    Moving expenses

    Qualified child or adult dependent care expenses

  3. Small Business Income and Expenses

    A small business can reduce or increase your taxable income.

    If you have a small business where income and expenses pass through to your personal tax return, then your business losses will reduce your TAXABLE INCOME.

    I believe this is why most home based business owners will stay in business and stick it out until successful.

    They make back what they invest in their business in their tax savings.

    What you need to give your accountant is your business income (your total sales).

    Then you need to categorize these important business expense deductions:

    Wages
    Rent
    Taxes and Licenses
    a.Payroll Taxes
    b.General Excise Tax
    Depreciation Expense
    Employee Benefit
    Bank Charges
    Dues & Subscriptions
    Gifts
    Insurance
    a.Liability
    b.Disability
    Legal & Professional
    a. Legal
    b. Accounting
    Office Expense
    Outside Services
    Parking & Tolls
    Postage
    Telephone
    Travel
    a.Airfare
    b.Lodging
    c.Auto
    d.Travel Meals
    e.Other
    Professional Development
    Auto & Truck Expense
    a. Gas
    b. Repairs & Maintenance
    c. Insurance
    Internet
    Merchant Fees
    Equipment Expense
    Meals & Entertainment
    Marketing/Advertising
    Supplies
    Storage
    Uniforms
    Utilities

    Conclusion

I actually keep this post bookmarked to keep track of the categories of expenses that my accountant wants me to use on my deductions.

Providing value and ways to help others become financially free is what I LOVE to do =)

If you want some support in your Financial Freedom goals, then CLICK HERE, watch the free video and get started in our mastermind program.

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