The old saying goes that death and taxes are the only two certainties in life. Maybe so and maybe not. I’m discovering a third certainty in life: most Americans are paying way too much in taxes to Uncle Sam. There are hundreds of tax deductible business expenses for small and home-based businesses that Americans currently overlook.
Did you know that if you have a home-based business and you take certain steps you could qualify for up to $5,000 per year in tax savings? That means that you could either pay Uncle Sam up to $5,000 less up front in quarterly tax payments or withholdings, or you could get a bigger refund on the back end. You just have to know which tax deductible business expenses to look for.
Now $5,000 sounds like a lot of money so how is it possible that so many people don’t know about these deductions? More importantly, why don’t their tax accountants know about these tax deductible business expenses?
The answer is simple. According to the National Taxpayers Union, the U. S. Tax Code has over 18,500 pages and about 5 million words. That’s a lot of pages and words, and most over-burdened tax accountants do not have time to focus on the sections that relate specifically to home-based businesses. Most accountants do well to just keep current on the basics-and I don’t blame them. That’s a lot to keep up with.
But if you are interested in paying up to $5,000 less to Uncle Sam every year then it’s up to you to figure out which tax deductible business expenses you can take. But don’t worry. There are experts out there who do focus on tax law for home-based business and they have detailed the exact deductions you can take.
I just reviewed the book “It’s How Much You Keep That Counts” by Ron Mueller and this book lays out all those tax deductible business expenses in plain English. I thought I knew a lot about what I could deduct in my home business but Ron’s book points out dozens of deductions I missed. Here are just a couple of major deductions that amaze me.
1. If you have a home-based business and are also employed at a regular job, you can deduct all the commuting miles between your house and your regular job. The trick? You have to work your home-based business before you leave from work and after you get back. You also have to document your activities in your home-based business that you did before and after your regular job. But documentation only takes a couple of minutes at the end of the day. Plus, mileage is one of the major tax deductible business expenses in a home business.
2. You can hire your kids (ages 7 to 18) to do simple work in your business, pay them an allowance for this work, and deduct the cost of this allowance as a home business expense. With the right setup and documentation, you can actually use this method to shelter up to $5,300 in taxes per child. Put this money into a custodial bank account you hold jointly with your child and use the money to pay for your child’s clothing, books, education, or even their wedding. This is one of the least-known tax deductible business expenses and you can use it legally if you have the proper documentation and setup.
You may be wondering whether these tax deductible business expenses are loopholes, gray areas, or just plain shady business. They are not. Congress has actually approved these tax deductions for small and home-based businesses because these businesses are good for the economy. Congress wants to encourage more people to create these businesses because small businesses make up more than 99.7% of all employers and create 75% of all the jobs in our economy (according to the Census Bureau). These deductions are 100% legal, ethical, and good for the economy.
The key to taking advantage of these tax deductible business expenses, of course, is learning how to properly set up your business and document your business activities so you remain legal. The steps are not difficult but you can’t be sloppy about your documentation. Ron Mueller’s book is absolutely a great place to start. To really stay on track, you might also look for business partners and mentors who can coach you and educate you along the way, many of whom are found in network marketing businesses, community service organizations (like the Chamber of Commerce), and online forums dedicated to home business.
Cheers and Happy Tax Season!
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{ 4 comments… read them below or add one }
Amazon dot com … here I come!
“It’s How Much You Keep That Counts” will be my next purchase.
Thanks for the recommendation! I know some pretty sharp CPA’s, but not one of them is a “home business” expert. And I believe very few are.
To Your Success,
~Melanie Kissell
Free Robert Kiyosaki CD, “The Perfect Business”
Melanie,
You can also go onto the irs website and check out their W-4 calculator and use it along with the W-4 calculator in the book and find out exactly what you and your prospects can save on their taxes! I’m helping my prospects find this out as they join!
Cheers,
Stephanie
This was a great article and I’m so glad to have found it. I’m hoping the above referenced book will be able to help me. I specifically want to find out if the products I personally use and buy from my company can be expensed as marketing. I buy the products, make commission, and use them for my family and promote them at the same time. If you have any suggestions as to another category that would be more appropriate, I’m all ears!
Thanks again!
Nicole
Hi Nicole,
That really depends on your accountant and how far you and they are willing to go. My accountant has me separate product I take from promotional samples, but I know MLMers who do deduct all their product. Check in with your accountant who is hopefully savvy about small business.
Cheers,
Stephanie