For those suffering the 1040 blues, I bring you some hope for smaller IRS payments. My inspiration is Newt Gingrich’s tax ploy. Newt set up a corporation to receive his income from books and speeches, and, by so doing, avoided about $70,000 in Medicare taxes. The mantra of tax adviser to the rich: “To whom much income is given, much less will be paid to the IRS.”
Here are some of my suggestions, a few of which may actually save you some tax money. Before you act on any of these, check with your accountant or tax adviser to determine if they apply to your tax situation. Remember: Tax avoidance is entirely legal and is not the same as tax evasion, which is illegal. It is often difficult to discern the distinction.
Be like Newt (in taxes, not marriage) and use a corporation to receive your income from your self-employment. If you are a sole proprietor, then your net income goes directly from your Schedule C to the 1040 and the self-employment tax takes 13.3 percent of it, up to $106,800 in income; then 2.9 percent of your self-employment income after that. Some law partners incorporate themselves to receive their partnership distributions and use this strategy to save taxes.
Businesses generally have numerous opportunities to avoid taxes. Most of us have computers, tablets, cell phones and various other tools of the trade. Use any of those in your business and you can deduct the entire cost in the year of purchase; if you finance any of these, you can deduct the interest payments. Now let’s be honest; most of us don’t use these devices exclusively for business, but still write off 100 percent of the cost. Yes, this does violate the tax code. Or consider the deduction for the “company car.” Is the car used exclusively for business or more often used for personal trips?
We need to eat. How sad is it to eat alone? Take a customer to lunch or dinner and deduct half the expense; be sure to spend some time discussing business. Then follow this meal by attending a Pacers game with your client and deduct the expense. There are numerous opportunities to discuss business during the time-outs and halftime. By the way, keep the receipts in the unlikely — and unlucky — event that you are audited. Small businesses are audited slightly more frequently than the 1 percent rate for individuals.
With the cost of health insurance rising, Congress has been so concerned that the tax code permits self-employed persons to deduct 100 percent of the health insurance costs for the self-employed, spouses and dependents. Contrast that with how the tax code deals with employed folks; they can only deduct the part of the premium they pay if the amount exceeds 7.5% of their adjusted gross income.
Need a vacation? You can travel to a business seminar, many of which are conveniently held at resorts or other choice locations, and deduct the airfare as long as you spend one day more at the seminar than on vacation. Remember the nights are your own and your meals away from home are also deductible.
And if the IRS asks you where you got this information, please, you did not read it here. I do not want to be among the 1 percent to be audited.
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