Should You Get a 2nd Job or Start a Part-Time Business?
It seems that everyone is looking to make more money these days. And many of the people I talk to say they need a second job.
Some people I know are even working three jobs to get by. And that’s all they are doing…getting by.
So that leads me to ask you: should you get a 2nd job or start a part-time business?
Thankfully Diane Kenney, CPA has an answer. And it just might surprise you.
In on of her writings she details the many benefits of having your own side business.
The biggest difference: you can make more money AND pay less in taxes (legally!)
Here’s how taxes work for an employee:
- EARN: you earn an income
- TAX: you get taxes taken right out of your paycheck
- SPEND: you spend whatever is left
Here’s how taxes work for a business owner:
- EARN: you earn money
- SPEND: you spend it on legitimate business expenses (like your cell phone, computer equipment, etc)
- TAX: you pay taxes on whatever is left
Diane outlines 5 steps to pay less tax with a home-based business starting TOMORROW:
(1) Make sure you really have a business. The IRS wants you to be able to demonstrate that your business is a real business venture. You need to be able to prove you’re running it in a business-like manner, are putting in the time and effort required to be an eventual success, either have previous experience doing this or are learning from others who do and that there is a profit motive.
(2) Look for your hidden business deductions. I’m not a fan of spending money simply for the tax deduction. Instead look for expenses you currently have that can become legitimate business expenses.
A business deduction must be ‘ordinary and necessary’ to the production of income. Common tax deductions for home based business include home office, car expenses, computer, computer equipment, meals and entertainment, pay for work your children do, cell phone, uniforms, travel and more. In fact, ask yourself: What do I spend money on now that could become a legitimate business deduction?
(3) Start good record-keeping habits. A lost receipt is a missed tax deduction. Start off with good habits to keep track of your expenses. One trick is to you use your smart phone to take pictures of your receipts.
(4) Estimate total business deductions. How much in deductions will you pick up each month? $200? $400? $1,000? We’ve seen clients find that much, and more, in business deductions.
(5) Change your tax withholding or estimated tax payment amount. Calculate how much the savings will be. A quick way to estimate this is to multiple the total annual amount of deductions times your blended tax rate. That’s the amount of total tax savings you can estimate. Change your exemptions (W-4) to the point where the total tax is reduced by this amount. Your payroll administrator at work will be able to help you calculate that, based on your own circumstances.
To sum it up: start your own business, and you’ll pay less in taxes and be building an asset for you, not someone else.