By Leading Tax-Deduction Expert Dr. Ron Mueller
Small and home-based business (HBB) owners are THE most tax-advantaged of ALL categories of taxpayers in America, bar none.
Did you know that? Most people who operate a network marketing or other type of business from home, have no clue that they are overpaying their taxes, by thousands of dollars – year after year after year. And for the deductions they do claim, many are at-risk in the event of an audit.
Can that really be true?
We all agree with Jim Rohn that “knowledge is power,” right? Then what is “lack of knowledge?” My answer is lack of knowledge is EXPENSIVE – especially if the knowledge you lack is about the ginormous tax deductions that are (a) available to you, but (b) unknown to you.
Let’s check your knowledge of small-business deductions…
Did you know that you can hire your own kids as young as 7 to work in your HBB?
Do you know how to deduct the wages you pay them?
Do you know how to make their income tax-free?
Do you know what records the IRS requires if you’re audited?
Do you know a Health Reimbursement Arrangement is probably your BIGGEST deduction?
Do you know it likely will produce some $5,000/year in tax refunds – every year?
Do you know an HRA (and only HRAs) will let you write-off every penny of the health
expenses incurred by not only you, but also by every member of your entire family?
Do you know what records the IRS requires if you’re audited?
Do I need to go on? Probably not. You get the idea.
The important question is WHY don’t you know about these (and lots of other) small-business deductions? There are a few different reasons, including:
-Because your tax pro is not your tax teacher.
-Because the IRS accepts responsibility ONLY for tax collections, not tax education.
-And frankly, because the Legal Department of network marketing companies often are afraid to venture into the subject of tax-education. (Why not? In my experience and opinion – even they do not fully understand small-business tax law).
This is PART-1 of a 7-PART Network Marketing Magazine EXCLUSIVE SERIES
In the next six segments I will reveal details of all of the six biggest tax deductions approved for small and home-based businesses. The purpose of this article, Part 1 of 7, may help you decide if you should, or should not, bother reading the next six segments.
Here’s the deal…
If you have a phobia against record keeping – even if I can make keeping records dirt-simple for you – you won’t need the next six segments because you shouldn’t be claiming ANY business deductions for the following reason.
Keeping adequate records for all of your tax deductions is not “just a good idea,” it is a legal requirement. Any auditor can (and will) disallow any deduction for which you do not have records that meets IRS’s fairly specific requirements.
But the good news is that record keeping does not have to be either tedious or time consuming. The IRS is very specific about exactly what records are needed to audit-proof a deduction, which makes keeping the “right” (IRS-required) records easy. For example, to get a deduction for using your personal vehicle for a business purpose, they want to see just four pieces of data: Date, Destination, Primary Purpose, and number of Miles Traveled.
For example, Date: 9-26-18
Destination: Starbuck’s at 7th & Maple
Primary Purpose: Business Presentation to Jane Doe
Miles traveled: 30 (round-trip)
What day is this? Where am I going? Why am I going there? How far away is it? Those questions are specific, so answering them is a piece of cake!
Seriously, how long could it take to record those four simple facts? Maybe four or five seconds? Probably less time than it takes to fasten your seat belt.
Is the deduction worth that 4-5 seconds of “effort?” You decide. For this round-trip, you would net $32.70 in tax deductions. But that’s just for one single use of your vehicle. If you put on 8,000 business-miles during the course of a year, you’re looking at about $4,400 in tax deductions, which would slash your taxes by about $1,500 – or increase your tax refund by some $1,500.
That’s some serious cash money in your pocket! And your deduction is “audit-proof” if you spend just 4-5 seconds each trip keeping the records.
If you’re thinking, “What’s the risk? The worst that can happen is I’ll lose the deduction if I’m caught without records.” That’s not exactly true, for two reasons.
First, you will be forced to repay the $1,500 to the IRS, plus you will also be hit with Interest and Penalties, which will approximately double your debt to around $3,000.
And second, now that they’ve “caught you” claiming this deduction without having substantiating records, the auditor will dig into all of your deductions to see how many other ones also lack documentation. Surely they’ll find some, right?
But the pain does not stop there. If they found a total of $5,000 of deductions to deny for the year under audit, guess what they’ll do next? Answer: They begin auditing two additional years of your tax returns (they can legally audit your past three years’ returns).
Let’s say the results of years two and three are similar to year-one. Now your debt to the IRS is up to $15,000. Oh, wait! We forgot Interest and Penalties. There’s another $15,000.
Final result – you will owe $30,000 cash, and they’ll want it paid within 30 days. But this scenario is easy to avoid.
Remember what triggered the events that led to a $30,000 surprise tax bill? An attempt to save the 4-5 seconds of time that would be required for record keeping. A wise decision? Maybe not. With adequate record keeping, that $30,000 would have remained in your own bank account.
So, to protect yourself and your business from a nightmare like that, you have only two choices.
One option is fairly drastic: You could decline to claim any business deductions at all – but, of course, that would will force you to overpay your taxes by thousands of dollars, year-after-year. That’s not a good idea and certainly not a pleasant thought.
Your other (wiser) choice would be maintain the records the IRS (and the law) require. Is that another unpleasant thought? Actually, maybe it’s not at all unpleasant. Here’s why…
What if you could produce audit-proof records for all of your business deductions for all year long, just by tapping on a keyboard or your cell phone for about five minutes a day or less? Honestly, that’s all it would take, assuming, of course, you use a system that streamlines the process – which I will be teaching you.
Imagine confidently claiming ALL of your business deductions – tens of thousands of dollars’ worth – with zero concern about having any of them come up in an audit?
That is not only possible, but I’ll show you how.
COMING UP NEXT
In each of the next six issues of The Network Marketing Magazine, watch for a series of six articles describing each of the six biggest tax deductions available to most small and home-based business owners. AND NOTE: for each deduction, I will share with you a system for keeping IRS-compliant records in less time than it takes to brush your teeth in the morning.
Joining the Entrepreneur Network is FREE! TaxPAL software is also integrated with Dr. Ron Mueller’s easy-to-understand, IRS approved tax saving strategies
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