How to Write Off Business Expenses – and Why You Should
One of the best parts about having your own business is writing off expenses (which are tax deductible). Let’s be clear: this is not tax evasion: it is tax avoidance. There’s a big difference.
Your losses (business expenses) will reduce your taxable income. If you buy a new computer for your business, that is $2,000 you write off. If your annual earnings for your business were $50,000 they are now $48,000 thanks to the laptop and your LLC. People without a business can’t do this. They are taxed on all $50,000.
I’ll explain:
Scenario A: You work for a company and earn $50,000
- You are taxed by federal government (and depending where you live, state government too) on a $50,000 income.
- You spend what’s left (and pay sales tax on that, too).
- You pay for your $2,000 computer with your income that has ALREADY BEEN taxed.
Scenario B: You work for yourself and have an LLC and earn $50,000
- You deduct business expenses that you track all year, including categories like travel, office supplies, advertising, and meals and entertainment. Your expenses total $10,000. Your new taxable income is $40,000.
- You are taxed by federal government (and depending where you live, state government too) on a $40,000 income.
- You spend what’s left (and pay sales tax on that, too).
- Everything you spent on business expenses is TAX-FREE.
If you don’t have a business, you’re being taxed twice.
Smart people — and people who grow their wealth — avoid taxation. Most Americans don’t know how. Most Americans who work for other people get taxed twice. You don’t have to once you have an LLC, and it’s completely legal. Here is my quick video on tips for setting up your LLC.
Vast majority of Americans:
Earn
Get taxed
Spend (you spend your after-tax income)
Business owners:
Earn
Spend (you spend your pre-tax income)
Get taxed (your taxable income is reduced)
