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Last Updated: Oct 6, 2008 - 12:00:27 PM |
FRIDAY JAN 25, 2008 (Foodconsumer.org) -- In the United States, as many as 65 or more people claim they are running some type of business, mostly of course small business. Although small business entities come and go quickly, running a business is an effective way to save tax dollars.
A few years ago, I learned a very important tip from an article by a finance advisor, which has saved me thousands of dollars in tax each year. The finance dude says the key is trying to maintain a zero balance (the amount of income subject to taxation is zero so you pay no tax).
Of course, that is an extreme. Most people may not have to maintain a zero balance to save tax dollars. But to save tax dollars, all people need to claim business expenses.
Most people run small business as sole proprietors. They do not have to register a corporation or LLC to get tax reduction. What they have to do is run a legitimate business, big or small, and keep all expenses associated with the business such as expenses for lunches and travel to Las Vegas or purchase of a high end computer etc and fill out a so called C-form to claim a business gain or loss.
Remember you do not have to earn a profit to make a loss claim. The Internal Revenue Services recognizes that you could run a business without any profit in a period of 3 to 5 years. The IRS wants to see your "intent" to make a profit only. But do not claim any expenses associated with a particular business if you can make any profit for 5 years. So it does not make any sense if you keep doing the same business for as long as five years without making any money.
One significant part of savings is that you may claim that certain portion of your home or apartment is used for your business. For instance, you run an internet business, of course for most people part time, you use a room as your office, and you may claim 25 percent of your rent as part of your business expenses. If you pay $10,000 as rent, you may claim $2500 for business use, you may save about $800.
The important things to remember include:
1) You need to have a genuine interest or intent to make a profit;
2) Keep all recipes including credit card monthly statements;
3) You need to spend certain amount of time on the business;
Now how to keep a good record is a challenge for many people. One simple way to do is use a credit card specifically for your business. Most card issuing banks give you a summary of expenses by the year end, which is not available for the personal credit card. In other words, the credit card statements can serve as evidence when you lose your recipes from stores.
I would strongly suggest those who run a business use a business credit card specifically for your business, not only because that can give you an impression that you run the business in good faith, but also because it gives you lots of benefits such as purchasing savings. To apply for a business card, check out uscards.com from which you have more than 100 credit cards to choose from.
Please note that the writer is not a finance advisor and what is said here are personal opinions only. Readers need to talk to their finance consultants to execute their tax saving strategies. The possibility is real: one can save thousands or even more for those who make high income.
© 2004-2008 by foodconsumer.org unless otherwise specified
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