We have all seen on TV or in a movie that most-generous person, after having enjoyed a meal with a business colleague comment, “let me get this,” while grabbing the receipt for the meal. They can feign affection for the other, and the other may say no, it’s my turn…and we really like the optics that are created. We are led to believe that one or both of them are sincerely being kind. And, they just might be.
However, the fact of the matter for most persons conducting business is that the meal they are paying for is an expensable deduction for their business, to be used to reduce their taxable income for that year. Mr. or Ms. Nice Person…knows and understands the IRS tax codes and is seeking to play the game by the rules that are in place. What about you?
Are you paying taxes as a W-2 employee or 1099 business?
Someone coined a phrase that I have heard spoken many times by others, and even used myself during presentations, “it’s not how much money you make, it’s how much money you keep.” Knowing and applying the IRS tax codes to your benefit gives you the ability to utilize capital for things other than taxes. You might now be able to repair something at your home, which you should own, and not rent. Maybe there is a trip to Hawaii, which can be a combined business/personal excursion.
My first entry as a 1099, Schedule C, business was in 1993, when I joined a network marketing company that manufactured electronic security devices, Quorum International. I was an Independent Contractor, not an employee, who had the ability to sell the products direct to consumers, and to also recruit others to do the same, as part of my team.
I soon learned from the “veterans” in the industry, to keep receipts of all my expenses; photocopies of documents to be distributed to customers and team members, business meals, trips in which I conducted business, mileage from meetings that I attended, and even my utility bills and phone bills. Imagine not paying taxes on the full amount of income earned during a calendar year. That is possible when you know the rules of the “game.”
When I launched my video services business a few years later, I had a solid understanding of the power of smartly spending my money on things that are assets and not just “stuff,” which are usually tax liabilities. If it is not a possible business expense, I learned to do without it. To this day, more than 20 years has passed and I still seek to use that as a guide toward how and where I spend my money.
The other thing that we must remember is that a business owner has a number of things to consider when setting price points for their products/services. They have business expenses that include state and federal taxes, utilities, insurance. Those are in addition to the normal expenses of purchasing inventory, advertising, marketing, payroll, legal and book-keeping services.
We must never seek to “get the hook-up,” hoping to get a discount that might cause them to take a loss on that transaction. How many times have we lamented, when seeking to go to a place we have visited before, only to discover they are now “out-of-business?” All too often we have contributed to that closure…because we did not understand the rules of business.
In conclusion, America has a taxation framework that is set up to benefit businesses. I suggest that you research creating and running one; whether a retail outlet or a home-based enterprise. Having a tax professional assist you in staying abreast of the ever-changing tax codes and insuring that you can take full advantage of all of your business expenses, could positively improve your family’s lifestyle today and into the future.