This may be a decade of tremendous corporate profits and economic growth, but for the vast majority of North Americans, the 90’s have been a dismal, uphill climb. And many economists believe that this next, new millennium won’t be getting better any time soon.
Why? Changing business and government attitudes are the reason. There has seemingly been more anti-business legislation in the last decade than in any other this century. Stronger employment and labor laws, the Age Discrimination in Employment Act, the Comprehensive Omnibus Budget Reconciliation Act (COBRA, which includes mandating health insurance for workers for a period of time after they leave employment), safety laws, much tougher laws for discharging workers, more liabilities for lawsuits, Family Leave Act, Americans with Disabilities Act (which is creating immense numbers of lawsuits), along with higher minimum wages and fringe benefits. NULL Just reading this list is exhausting. While these acts have beneficial and protective aspects, they have also encouraged businesses to move their facilities. That “sucking sound” popularized by Ross Perot, is not just down to Mexico, but elsewhere as well. The result has been a dramatic loss of heavy industry in the U.S.
The young and the middle-aged alike are realizing that their dream of “having a job with a company forever” is an illusion.
Companies have been downsizing, rightsizing, and capsizing for some time now, and they continue to do so- more now than ever before. Even the federal and state governments are getting into the act with layoffs and attrition of jobs. In addition to all this uncertainty and mutual lack of loyalty between companies and employees, even the workers who do not keep their jobs have no guarantee of promotions due to the shrinking number of management positions. These circumstances aggravate the already tryingly long commutes in rush hour traffic and increasingly typical frustrated boss-spelled backwards, that double S-O-B. Finally, if all this isn’t bad enough, under recent tax laws employees are shafted more than ever wit h limits and thresholds for their employee deductions and higher social security tax limits. This results in more couples working than ever before and, on many occasions, working more than one job.
It is now almost impossible to have only one job in the family and make ends meet! Today, many households need three incomes just to survive.
Sadly, even having more than one job does not produce any major positive effect on most people’s bank accounts. Why? Because of tax laws. This was well illustrated in 1994 by Jane Bryant Quinn in her Woman’s Day article on “How to Live on One Salary.” Where The Money Goes- Ms. Quinn’s example assumed that a man was earning $40,000 per year. His wife (we will call her Lori) wasn’t working. They had more month than money. (Sound familiar?) Lori subsequently got an administrative job for $15,000 per year. You would think this would improve the family’s financial situation, but when Ms. Quinn examined the economics of getting this extra income, the results were startling! Lori had to pay federal and state taxes on her new income. Since they filed jointly, the family’s combined income was what established their tax bracket. She paid $4,500 in new taxes, most of which was non-deductible, for federal and state income tax. Lori had social security withheld from her paycheck at the rate of 7.65 percent, which amounted to an additional nondeductible amount of $1,148 being extracted from her salary. She also had to commute to work 10 miles a day round trip, which is probably conservative for most people. This resulted (in 1995) in nondeductible commuting costs of $696. Lori also had some child care expenses, which give a partial tax credit. Ms. Quinn figured that the amount spent over and beyond the tax credit was $4,250 per year. Lori also ate out each day with colleagues, spending an average of $5 per day, five days a week. This results in a nondeductible expense of $1,250 per year. (I would love to know where she ate for only $5!) Now that Lori has a job, she has to have professional clothing; this means a hefty dry cleaning bill. Ms. Quinn assumed that Lori’s increased expenses here amounted to an extra $1,000 per year, nondeductible, of course. Finally, with both spouses working, Lori wasn’t in the mood to cook dinner every night. They bought more convenience foods and ate out more frequently. This resulted in increased food costs of a nondeductible $1,000 per year in minimum. Add it all up and Lori’s take home pay was a paltry $1,156 a year, for which she had to put up with a daily commute, an unpleasant boss, and corporate hassles. (See the following summary of all of these numbers, so you can do the math for yourself.)
No wonder more and more people are starting home-based businesses. In fact, there are currently an estimated 30 million people working from their homes.
This number is expected to more than triple, to 97 million, by the year 2000, and to keep on growing. This has become and will continue to be one of the greatest mass movements in the U.S. Why a Home-Based Business Makes So Much Sense There are many reasons why so many people are favoring home-based over traditional business. There is no commute (unless you have a really big home), no boss, little if any chance of lawsuits, must lower overhead, no employees, (or few), and far fewer government restrictions. In fact, many of the laws previously cited don’t apply to small firms with few or no employees. It is for these reasons, according to Entrepreneur magazine:
95 percent of home-based businesses succeed in their first year and achieve an average income of $50,250 per year with many earning much more.
There are really two sets of tax laws in this country. One is for employees, and it allows deductions for individual retirement accounts, 401(k)s (if you have one set up by your company), interest and property taxes on your home (which some in Congress want to do away with ), and charity. Then there are the laws for home-based business people who conduct their business either full-time or part-time. They can deduct, with proper documentation, their house, their spouse, and even children (by hiring them), their business vacations, their cars, and their food with colleagues. They can also set up a pension plan that makes any government plan seem paltry by comparison. For Lori- and for you- the meaning of all this is simple: Lori earned $15,000 in salary as an employee, but took home only $1,156. She could have netted the entire $15,000 had she earned it in a home-based business! This is an increase of almost 13 times her take-home pay as an employee. Notice that Lori is not spending dramatically more money than she is currently spending. She would eat out anyway, go on trips and drive her car the same as before. By having a home-based business, however, many of their expenses become deductible. This concept is known as “redirecting expenses.” With a home-based business, she can now deduct some of the expenses that she is incurring anyway. Renegade Strategy 1:
If you don’t have a home-based business, start one today!
In addition to all the benefits mentioned above, Congress will subsidize you while you are growing your home-based business. If your home-based business produces a tax loss in the first year or so, you can use that tax loss against any other income you have. It can be used against wages earned as an employee, dividends, pensions, or interest income-or you can use the loss against your spouse’s earnings if you file a joint return. If the tax loss exceeds all your income for this year, no problem. You can carry
back the loss two years and get a refund from the IRS for up to the last two years of income taxes paid, or you can carry over the loss twenty years. You read it right: You can offset up to 20 years of income! Here’s an example: Mike earns $50,000 in a job with the government. If he starts a home-based business that generates a tax loss of 10,000, he only pays tax on $40,000. Renegade Tip: You can never lose a properly documented business deduction.
In fact, if everyone in the U.S., who is employed full-time, began a home-based business, used the strategies I suggest, each household could easily save between $2000 and $10,000 in taxes each year.
If all employees in the U.S. did this, the tax bite of the IRS would be reduced by a whopping estimated 300 billion dollars annually. Of course, Congress would have to change the laws for this to occur.
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