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Tax Shelter

November 28th, 2009 Joe No comments

Step Seven

Tax Shelters are usually associated with negative and or illegal operations.  This is not the case if you are going to start your own business in your free time like I suggest in step six.  Fact is that you are probably already spending money doing your hobby now.  For some that may be baking, photography, gardening, painting, building, or racing cars.  The fact is that you can start your business doing this thing you love and convert your personal expenditures into allowable deductions you will be well on your way to Average Joe Millionaire Status.

Step one: Turn yourself into a business owner.  This is easy and cheap to do.  You can even go to websites that walk you through the entire process.  For some you may want to consult an business attorney to do this for you.

I have heard people having luck using LegalZoom.com for their business needs.

To be in business is easy.  Simply declaring it with the proper entity is all you need to do.  Once you are in business you can magically turn personal expenses into tax deductions.

The best part is that your business does not necessarily have to make a profit.  In this scenario we are working towards a profit but if for the first couple years you don’t make one that is no big deal.

Quoting straight from the IRS

“Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.”

“The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.”

There are certain ways to structure your business to then take these losses and deduct them from your personal federal income taxes.  So say you owe Uncle Sam $7000 for the year in personal taxes and you structured your business as an S Corporation.  In that situation you may be able deduct any business losses on your personal taxes possibly allowing you to put that $7000 into your business instead of sending it to the IRS.

I dont know about you but putting my taxes into my business sounds pretty good to me.

Working towards a profit can be easy too.  So you like baking and you want to start a cake business.  You could sell just a few great wedding cakes to make a nice lump of money and offset many baking expenses.

If you are into racing of some kind you sell advertisements on your vehicle, body and trailer.  This can add up quickly and pretty soon you are making a small profit.

Making a profit is very specific to your situation.  I cannot tell you how to make a profit because I dont know your business plans.  Feel free to post a comment with business ideas and I will give feedback on profit structures.

This article is in no way meant to influence you do anything illegal.  Including avoiding taxes. Avoiding taxes can come with harsh penalties and would damage your chances of getting rich.

On the other hand I want you to get the most out of our capitalistic system and keep as much of your hard earned money as legally possible.  I want you to pay millions of dollars in taxes but not a dime more than you owe.