Step 9: Cuz I’m the Taxman, Yea, I’m the Taxmaaannn

If you ever looked at the pay stub from your paycheck, where all of the taxes are taken out of your check, you know how expensive taxes are. In fact, taxes are usually the biggest category of expense. Your taxes will be higher than your rent, your food, your car payment – taxes are the biggest expense of all.

Start A Side Business Doing What You Absolutely Love to Do

The only way to avoid the tax trap is to start your own business. This is a bit different from a side hustle that you do just to make money. This is your new you endeavor — your calling — that you always wanted to do.

If you have a something that you really like to do -figure out a way to turn it into a side business until you can run it as a full time business. With a business, you get to determine how much to charge for your goods or services. Then you can lower your tax bill by reducing your income with the money you spend to run the business. And there is no one telling you what you can deduct. It is up to you. As long as the expense is related to the business, you often get to deduct the expense. So, spend money on your business in a way that improves the quality of your life.

If you have a passion – turn it into a side business until you can run it as a full time business. You are entitled to lawful deductions off of your income. It pays to have your own business.
ms. katherine

Here is a simple example. Say you have a passion for landscaping. Start a small business by printing some cards. Give them out, get a client, and carefully evaluate the proposed job. Determine the price for materials. Set a price for your education, practical knowledge, and labor. Spend a lot of time figuring out what your profit will be. Then bid the job, keeping in mind that you must keep your profit high. Get the payment from the client and deduct all the material expenses and costs associated with the job. Every single item you buy for the job is deducted from the amount that you are paid. Keep the receipts. At the end of the year, when you go to pay your taxes on the income for the job, you list all the materials as deductions.

You are taxed on your labor, not on the material for the job. In this way, you get to work at doing something you love. You get to go to the store and buy all those wonderful items that are interesting to you, with someone else’s money. You get to plan for the project and use your ingenuity. You finish the job and get paid. You keep the profit. At the end of the year, when you go to pay your taxes, you list the amount that you are paid, minus all of the goods and all the expenses associated with the job. You are only taxed on the profit from your labor. It is up to you to list how much you made as a profit. In having your own business, there is no one limiting your profit. There is no one limiting the deductions. There is no automatic taxation of wages. You control your profit. You control your taxes.

In contrast, as an employee, you have no way of controlling how you are taxed. You are subject to automatic taxation. You don’t get a single deduction for the expenses associated with your job. The money you spend on food at your job? No deduction. The education you need to keep up with your job? No deduction. The money you spend on supplies and miscellaneous stuff for your job? No deduction. Depending on the business that you start, each of these things is deductible. Almost every expense associated with your business is deducted off of your taxes. No expense associated with your job is deducted off of your taxes.

The downside of having a business is that you are no longer collecting a steady paycheck. You are no longer in the warm bubble of having a paycheck put on your desk. Instead, you experience the “cold chill of freedom.”

But once you get used to the idea that you have to go out and fend for yourself in order to eat, you experience the thrilling feeling of controlling your own destiny. You learn to look for clients. You learn a different skill set, involving networking and referrals.

Networking is fun and you get to, again, deduct the costs of networking off of your income for the entire year. In fact, you can develop a very interesting social life developing business.
-Ms. katherine

You get to eat in fancy restaurants as you try to coax business from prospective clients. As you ply your prospective client with wine and food in an elegant restaurant, you can smile at the thought that the entire meal is reducing your taxes. You can travel around the world educating yourself about your business.

So that passion that you wish you could indulge – that new business you always wanted to have – go for it – because the government wants you to be in business for yourself and employ other people.

Get a good accountant and play the tax game legally by having a business. The laws allow you to engage in tax preparation so you can keep your taxes down; so get a very good accountant and play by the rules. There are a lot of rules and some will help you greatly. Businesses are given preferred tax treatment. The government taxes employees and allows business owners many legal ways to reduce their taxes. So, get in with the wealthy group – the business owners.

Finally, there is another overhead that must be examined and manage closely – read the next article to find out what it is and how to manage it.

And check out the Recommended Reading below. “The Innovation Stack” is a hilarious book about what it takes to have your own business — constant innovation! In order to stay ahead of the competition, you have to be willing to change and adapt to the manner of business that works for the market. Once the competitors realize that they cannot kill you, they eventually give up, and you become the market leader! Jim McKelvey, the co-creator of Square, (with Jack Dorsey) had Amazon as a competitor! And guess who won…and guess how…I will let you read the book…for great laughs and great ideas on the Innovation Stack!