Reduce Your Income Taxes by Owning a Home Business

By hellomaniam at 2020-08-06 • 0 collector • 199 pageviews

The taxes you have to pay each year have nothing to do with how much you earn. How much you income taxes you pay is directly impacted by how much you know about legal and acceptable income tax deductions. Doing your income taxes yourself or handing all your income statements and receipts to the tax preparer at the mall each spring is a sure-fire way to pay way more income taxes than you should.

The tax system is complicated but with the help of a tax specialist or a qualified accountant you should be able to recover a large amount of the income taxes that are taken from your pay check each week. There are many legal way to reduce or completely eliminate the amount of taxes you have to pay each year, and this article will focus on one of them. How to save money on your income taxes by starting your own home based business.

The current tax system is progressive in the sense that the more money you earn the higher the percentage of taxes you have to pay 52000 After Tax. A person earning $30 000 a year might pay close to 30% in income taxes while someone making $100 000 would be in the 40% tax bracket.

You are not taxed on your total income but on what's called your "Net income". This is calculated by removing personal and basic deductions from your total income. Most companies will take income taxes from your pay check each week based on your estimated net income for the current year so that you don't have to pay income tax at the end of the year, but you will not receive a refund either.

So if you earned $40 000 for the year and your basic deductions came to $8 000 your net taxable income would be $ 32 000. This amount taxed at 30% would mean that you would have had to fork $9 600 over to your governments tax department throughout the year.

Now that you understand that you are taxed on net income after deductions doesn't it make sense to find ways to legally increase the number and total amounts of these deductions? If you earned $40 000 a year and had $40 000 in income tax deductions, your taxable income would be zero and you would recover 100% of the income taxes you paid for that year. That is how the wealthy manage not to pay income taxes each year; by having enough deductions to offset their total income.

One of the best ways to create substantial tax deductions is by owning and running a small business from your home. By having a home based business you can start claiming deductions on things and activities that are considered of a personal nature by others.

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