You, and only you, have the power and the control over your money and your taxes. Nobody else. This includes your tax preparer and your tax advisor. They cannot reduce your taxes. They can only help equip you to do so.
You may say, “My tax advisor handles my taxes,” but that is a myth about income taxes. Your tax advisor cannot handle your taxes. They can prepare your tax returns. They can give you advice about what to do in a particular situation. Quite possibly they can even tell you some rules that will help you reduce your taxes. But they cannot take the actual steps to reduce your taxes. Only you can do that.
| Don’t Wait for Year-End to Do Tax Planning | |
| 1. | Every day you could be reducing your taxes. |
| 2. | Year-end tax planning is important but year-round tax planning is better. |
The good news is that you can reduce your taxes right now. Anybody can. And you can do it every day of the week. All you have to do to change your tax is to change your facts. There are two simple principles (represented in Rule #4) that you need to keep in mind as you consider how to reduce your taxes: Every dollar, pound, or euro you earn can increase your taxes, and every dollar, pound, or euro you spend can decrease your taxes. And every investment or business deal you do will affect your taxes for good or for ill.
All you have to do to change your tax is change your facts.
| RULE #4: | Everything you do either increases or lowers your taxes. |
You might as well learn how to make everything you do affect your taxes for good, right? Thankfully, it’s not complicated. It’s simply a matter of learning the difference between bad, good, and better income—and then learning how to turn your expenses into tax deductions. And the really cool part is that every expense has the potential to reduce your taxes—really, every expense.
And the really cool part is that every expense has the potential to reduce your taxes – really, every expense
| TAX TIP: | Eat while you work and save taxes. Business meals are a great way to spend time with employees, clients, and customers. You can discuss business and turn your meal expense into a deductible expense. |
Let’s face it, the best part of having money is spending it. But when you can not only spend your money but also decrease your taxes while doing so—well, then you’re really cooking.
I know a lot of people who love to shop for bargains and constantly look for sales and specials. It’s like a professional sport to them. You wouldn’t believe the amount of time, energy, and effort that they put into finding deals and saving money. They’re thrilled with a 20 to 30 percent discount on their purchases. But when it comes to doing their taxes, they don’t want to take the time. I don’t get it—well, actually, I do. Tax returns can be a royal pain. And most people just want to get them done and over with as quickly as possible. But what if you could get a 20 to 30 percent discount on all of your purchases any time of the year? That’s exactly what happens when you change your expenses from a personal expense to a business deduction. The government essentially pays for 20 to 30 percent of your purchase in the form of a tax deduction.
But what if you could get a 20 to 30 percent discount on all of your purchases any time of the year? That’s exactly what happens when you change your expenses from a personal expense to a business deduction.
I like to shop at Costco, a discount store that sells groceries and other everyday items. Costco also sells gasoline. People line up, sometimes waiting for long periods of time, in order to buy their gas at Costco because it’s routinely 10 percent less than other gas stations.
I never buy my gas at Costco.
Why? Costco doesn’t allow me to use my business credit card. And since most of my car use is for business, I get a deduction for the gas if I use my business credit card (plus I get frequent flyer miles). That deduction is worth 20 to 30 percent to me in lower taxes. So it’s worth paying a little more at the gas station down the street in order to get the tax deduction. It’s the little decisions like these, made every day, that add up to big savings in your taxes.
By now you’re probably dying to find out how you can start paying less in taxes every day.
| CHAPTER 4: KEY POINTS | |
| 1. | There is one way to put cash in your pocket almost immediately: reducing your taxes. |
| 2. | Learn how to make everything you do decrease your taxes. |
| 3. | Learn how to change your expenses from a personal expense to a business deduction. |
Tax Strategy #4 – Deduct your Meals
Almost any expense can be deductible in the right circumstance, including food, cars, travel—even your house, if you change your facts so that the expense is a business one. What’s a business expense? In the United States, the tax law requires each business deduction to meet three tests. First, the expense must have a business purpose, which means the primary reason for spending money was for your business. Take meals as an example. To be deductible, the purpose of a meal must be business. This means you need to have a conversation about business with your dining partner before, during, or after the meal. The other valid business meal would be if you were traveling away from home on business. Second, the expense must be ordinary. An expense is ordinary if it is “customary and usual.” This means that within your industry, the expense should be typical of what would be spent, both in the amount of the expense and how often a person in your position would have the expense. Suppose, for example, that you go out to dinner with a business associate. In your industry, what would be the cost of a typical business meal? If you’re a truck driver, the typical business meal is going to be different than if you’re a movie star or professional athlete. An insurance agent might go to lunch with a client or business associate every day, while an auto parts manufacturer might only go to lunch on business once a week. The key here is that whatever is typical in your industry and your position within the industry is what the IRS will allow as ordinary.
Third, the expense must be necessary. Necessary means that the purpose of the expense is to make more money for your business. It’s not enough just to go to lunch with someone and talk business simply because you are friends. Your conversation at lunch must have the intention of increasing the profits in your business. These three rules are not difficult to meet. Let’s say, for example, that your business partner is your spouse. If you’re like most business partners, you’re always talking about business and always looking for ways to improve your business. So pretty much every opportunity you get to have a quiet meal together in a restaurant you will discuss business. Just don’t be extravagant about it on a regular basis. One rule of thumb here is that “pigs get fat and hogs get slaughtered.” If you are greedy and go out to expensive restaurants on a regular basis, the IRS may not look so kindly on your deductions for meals. Still, one of the most common mistakes I see is couples who are always talking about business when they go out to dinner but not paying for their meals with their business credit card.
Entrepreneurs and Investors Get All the Breaks
“If you want more of something, subsidize