The Barters and Bootstraps column shares success stories in barters and small business ventures.
Shortly before she died, Margaret Mead gave me seven words of advice. Now, years later, I follow them religiously. I had attended a lecture of hers and volunteered to drive her to the airport, knowing I could pick her brain. After having nodded off during a fairly one-sided conversation in which I enthusiastically articulated my career plans, she was suddenly awakened by a speed bump.
Apparently not happy to be awake, she grunted, "Don't be a clone. Get a life." She had a terrific economy with words.
Man, it is not easy getting a life when you are in the "40/40/40" crowd, along with the job, kids, mortgage, car payments, social commitments and taxes. No, 40/40/40 does not represent age/IQ/waist size, it indicates age/income/net worth. It wasn't long ago when the guiding principles were "sex, drugs, and rock and roll;" now, looming on the horizon are "hair loss, taxes and death:'
If you're married and making roughly $40,000 per year you are paying out about $10,000 in income and social security taxes. The total tax burden for the typical family consumes 45 percent of its income, according to the National Taxpayers Union. This means that we work until May 6 to pay the tax bill, then the remaining income earned the rest of the year is ours to keep. Sound enticing? I thought so. Yet there are a few perfectly legal, simple, and understandable ways to take the bite out of next year's bill. Lend me your ear.
Don't get me wrong, some taxes do good. Tax on gasoline pays for road upkeep, property taxes pay for schools, sales tax pays for civic improvements. But your federal taxes go primarily to Department of Defense boondoggles and cost overruns, which gets 20 percent of the budget for $500 toilet seats and $15,000 cross-continental flights for generals and their cats. Social Security gets 23 percent of the budget, which doesn't look too secure, 25 percent goes to welfare, and interest on the 5 trillion-dollar deficit gets 23 percent. I have no problem with rendering unto Caesar, but I've rendered so much lately that I can't even feel my wallet anymore ...or that side of my leg for that matter.
For you to spend $100 in pursuit of getting a life, hobby, or whatever you enjoy, you must first earn $140 in order to take home that $100. If you turn the hobby into a business, however, you could spend that $100 before the government takes its share. And therein lies the single, simplest, most effective tax reduction strategy that all 40/40/40 taxpayers should employ: starting a business that is focused on what you already spend the bulk of your "leisure" funds on. If you do this, many of your leisure/hobby-related expenses become tax-deductible expenses.
The rich don't need to go through all this; they have well-paid advisors that help them pay less in taxes per dollar earned than the middle income people who cannot afford the advisors. 0.1. Simpson proved the Golden Rule that "Those with the most gold get the rules interpreted the way they want."
Ken was addicted to flying airplanes. H scrimped an, saved to buy a plane, then he discovered that hobby planes are known to amateur pilots as "black holes in the sky where all your money goes." So he began to take photographers over scenic areas and disaster sites, to charter trips for small groups, and to rent the plane out.
He had to get a commercial pilot's license to pull it off, though. It worked. He was putting out over $8,000 per year, but now, thanks to his tax deduction and new business income, his net loss is only about $2,000 annually, and he's looking at getting a larger, faster plane next year.
Jeff and Cynthia loved horses. They soon figured out that keeping two horses on their 40-acre spread is just about as much work as keeping 10 horses, so they entered the horse boarding business. They take in $150 per horse, per month, and that more than offsets the expenses of their own two animals. They spend the excess on continual improvements on the barn and watering system.
Anna and I met at conference. She was the first conference junkie I ever met. She went to a different conference or workshop every month. Occasionally she taught a workshop at one of the conferences, so her new business was as a "trainer." Therefore, conferences, travel, materials, were all considered educational expenses for her new career.
The Mason's were dog lovers. They especially loved small dogs, so they turned their pastime into a dog breeding business. Mother of the house, Sophia Mason, was a comedienne as well. They had business cards printed thusly:
Sophia says they just about decided to breed bull terriers with the popular Shitzu, so they could market the new breed called bull-shitz. Of course pedigree breeding requires a good deal of paper work with the American Kennel Club). But, the annual sale of a few very expensive pups offsets costs of feed and vet bills.
The first step is to identify where your money goes. Order a cost analysis report from Visa for the previous year; it costs $5 and is worth it. Take all your canceled checks and organize them by type of expense. Now that you are beginning to get a clear picture, get a small calendar notebook and track every single expense, even mileage, and especially cash for a month to determine where it goes.
Select which business to create. Your criteria should be:
Set up a record keeping system. Get a separate checkbook. Get an accountant and have a meeting early in the life of the business for planning and guidelines, then be ready to pay her a couple hundred bucks at the end of the year to help you get your taxes straight. Get a great calendar that you can keep track of who you saw when, how many miles you drove, cash expenses, what transpired, etc.
Draft a brief business plan.
Register as a business in your state. If you are in the business of buying things and selling them later, you may qualify as a retailer or wholesaler, which has several benefits. For instance (a.) You avoid paying sales tax on items you will resell. (b). You may be able to buy from wholesalers at a discounted price.
Don't try to deduct your gas bill, or food, or regular expenses of living, unless they are directly related to your business. (You could deduct clothes if some unique costume were required for your work.) The IRS considers the deduction of at-home expenses (a portion of the rent, gas, water, electricity, etc., as part of a business) as a small red flag worth examining, so, be very careful in choosing which expenses to deduct.
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