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Tax Benefits: The Big Four

© by Fred W. Daily

Some say owning and operating a small business is the little guy’s tax shelter.

If your venture incurs a loss, you can off-set it against any other earned income for that year. In effect, you share costs as well as profits with your silent partner, Uncle Sam. The tax code is full of opportunities, whether you open a corner deli or you are a home-based consultant.

According to the IRS there are 15 to 20 million small enterprises, and the number is growing in this age of downsizing and out-sourcing. About 85% of these folks are sole proprietors or husband and wife teams. The rest are in partnerships, limited liability companies, or have incorporated their venture. Here are just four tax advantages open to tax savvy small time operators:  

  • Personal living expenses can become wholly or partially deductible, including your home, car, computer, meals, education and entertainment. I won’t kid you, though, there are some strict tax code rules to follow here.
  • Retirement savings plans open to self-employed folks can shelter a sizable portion of your venture’s income from taxes, as well as accumulate in tax-deferred investment accounts until the day you hang up your spurs.
  • Family members--young and old--can be put on the payroll thereby shifting business income to lower tax bracket relatives, benefiting the family unit.
  • Travel and vacations can qualify as at least partially tax deductible business expenses with a little planning on your part. Of course, there must be some kind of local business activity associated with that family trip to Disneyworld.

You don’t have to be a tax wizard or even hire one to get in on the tax benefits. If mastering the tax code were a prerequisite to starting a business, no one would dare. But, operating a business without some tax awareness is like skydiving without a parachute--certain to end in calamity. Luckily most of the tax law has little or no application to the small entrepreneur, so there is no reason to be tax-intimidated.

By: Frederick W. Daily, Tax Attorney,
John Raymond, Bankruptcy Attorney, and
Allan H. Rosenthal, paralegal.
All of the three have offices in San Francisco.

© 1997

(This article was originally written for tax practitioners who represent clients before the IRS. But the information presented here is valuable for all taxpayers.)


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