Did you know that there are two
different tax systems in the United States? Did you know that
the average U.S. citizen pays roughly 42% of their hard earned
income to the government?
First, let's talk about the two
tax systems. The first system is for the employee. The
employee has a set hourly wage but before he sees any of his
hard earned wages, the government takes what they deem is their
share. Only after the government has had its take does the
employee finally get the left overs.
Usually the amount the
government takes out per check is more than what the employee
will spend in food, fuel, housing and transportation.
The second system is for the
business owner. The business owner makes his money then pays
for the bills he has incurred to operate the business. Then and
only then does the government get to take their share. The
government has to wait until all the bills have been paid.
Which tax system would
you like to be a participant in?
Start a home based business and
you can participate in the second system. This doesn't mean
that you have to have a brick and mortar business though you
can. You don't have to hire additional employees, though you
can. You don't have to quit your day job, though you can but I
suggest that you wait until you know you will be making enough
money to live on.
There are three requirements
the IRS has to be qualified as a home based business.
Intent to Make A Profit
You need to show that you have
intent to make a profit. This doesn't mean that you need to
make a profit, just that you intend to. You can do this several
ways.
Write up a Business Plan. It
doesn't need to be anything fancy. It can be something a small
a page long that outlines what your business is about and how
you plan to make money. Essentially, it's your goals and steps
you are going to take to see the fulfillment of those goals. It
is up to you how detailed you want to get.
Open a separate business
checking account that is used for the sole purpose of your
business.
Incorporate your business.
There are more but these are some of the basics that show the
IRS that you intend on making a profit.
Work your business on a
regular basis.
This is the second
qualification. This means you work a set amount of time a
week. It can be as little as 45 minutes a day four or five days
a week. Having said that, you do need documentation on when
your worked. This documentation can be in the form of notes in
your day planner.
Run your business like a
business.
This is the third and final
qualification. This means that you keep track of the activities
you accomplish. You will already be well on your way if you
have a day planner for the notes. Create a paper trail. Keep
track of memos, bills, etc. that show your business
transactions.
I ask you again, which tax
system would you rather participate in?
