How To Save Thousands By Writing Off The Things You Buy
From Mindful Wealth Update Published by Natural News
As I’m sharing business ideas with subscribers to this list, I’m being asked some good questions, such as, "Why should I start my own small business in the first place?"
The answer is an important one: Because it lets you pay for the things you’re already doing by using pre-tax dollars instead of after- tax dollars, and that saves you a big bundle of money every year.
In fact, I’ve made it a founding principle of small business: Let your business pay for the things you enjoy!
What do I mean by that? (This is a very powerful principle that could save you many thousands of dollars this year alone… keep reading.)
Consider this: Most people have a JOB, where is where they earn money, and then they have a LIFE, which is where they spend money doing things they enjoy. Many people subscribing to this list are into natural health, so part of their LIFE involves purchasing superfoods, nutritional supplements, massage therapy, traveling to health retreats, buying health-related devices, and so on.
Now here’s the huge financial mistake most people make on this: They earn their money at their JOB, and then they pay huge taxes on that money, and then they use after-tax money to buy the things they actually like to do in their LIFE!
This is a terrible way to waste money. Let me demonstrate this for you with some simple math:
Mary makes $2,000 a month. State taxes, federal taxes and social security taxes take 25% of her check, leaving her $1,500 a month as take home pay.
Using that $1,500 a month, Mary buys $250 / month in superfoods and supplements, plus she spends another $250 / month in health-related books and services (like chiropractic care, massage, etc.). This leaves her with $1,000 / month, from which she has to pay her rent, bills, student loans, or whatever.
The key point to understand here is that Mary is buying things with after-tax money. She’s paying taxes on the money first, and then spending the after-tax money to buy things for her LIFE. It’s like being charged twice for all the things you buy.
What if she could spend pre-tax money on those things instead? Effectively, everything would be 25% cheaper (or more, if you’re in a higher tax bracket).
Saving Mary’s dollars
Let’s take a look at how that works:
In addition to working her JOB, where she takes home $2,000 / month, Mary also starts a part-time health-related business of her own. (I’ll be sharing LOTS of ways for you to start small, low-cost businesses that can earn real dollars for you… that’s for the next email…)
To start her small business, Mary forms a simple LLC (costs less than $200 to do this online) and starts a low-cost online business. For this demonstration, it doesn’t matter what that business is, but it could be a content web site funded by Adsense ads, a small network marketing distributorship, a self-published book or video, an online health coaching business, a product review affiliate site, an herbal soap-making business or something similar. (I’ll present lots of business ideas for you in this Mindful Wealth email newsletter. Stay subscribed to receive those ideas…)
Mary’s part-time company earns $600 / month in revenues, and she spends about 5 hours a week running it (20 hours a month).
But now, here’s the difference — Mary’s expenditures on health- related books, products, services and travel are all now tax deductible business expenses directly related to her business, which is producing a small profit.
So instead of spending $500 / month in after-tax money buying the things she likes, Mary is now spending pre-tax money by allowing her LLC to buy these things, and she writes them off as tax-deductible business expenses.
Do you see how this saves Mary a lot of money?
Here’s the math:
SCENARIO #1: THE JOB Income source #1: Mary’s JOB, $2,000 / month ($1500 take home pay after taxes) Expenditures: $500 on health-related products, services and travel Money left over: $1000
SCENARIO #2: THE SMALL BUSINESS Income source #1: Mary’s JOB, $2,000 / month ($1500 take home pay after taxes) Income source #2: Mary’s online business, makes $600 / month Total take home pay: $2100 Expenditures: $500 on health-related products, services and travel, which are now deductible as business expenses!
Money left over: $1600 with NO additional tax burden. Additional time required: 5 hours per week
In other words, by spending 5 hours per week, Mary has been able to increase her after-tax take-home pay by $600 per month while still acquiring all the health-related products and services she normally buys!
Get more benefits for less work
Do you see the magic of what happened here? In both scenarios, Mary is spending $500 / month on the things she enjoys (essential oils, wellness products, green home products, health-related travel, etc.), but in Scenario #1, she’s buying all those things with after-tax money (expensive money), while in Scenario #2, she’s buying them all with pre-tax money (cheaper money) and them writing them off as legitimate deductible business expenses.
As a result, her online business only earns a small "profit" of $100 / month, which she will have to pay a small amount of income taxes on. If Mary spent $595 per month on business-related expenses, then her "profit" would only be $5 / month!
The strategy here, of course, involves creating a business that’s related to the things you enjoy doing (and buying) anyway. If you’re going to spend several hundred dollars a month on books, supplements, computer equipment, travel and health-related services, it makes no sense to be using expensive, after-tax dollars to pay for them all!
Keeping it legit
So how do you make sure these purchases are a legitimate part of your business expenses? It’s easy: If you ever review or recommend the books, products or services you’re buying, then you have a legitimate reason to write them off as business expenses (check with your accountant for full details).
* Recommend the products in your blog, in your book or on your video.
* Write article reviews.
* Mention them on your internet radio show.
* Retail them on your e-commerce site.
* Sell them through affiliate links.
* List them on your website along with their ingredients (and maybe a comparison chart).
… each of these is a legitimate reason to write off these expenses. Other expenses you can write off include:
Books: You have to read health books to stay up on the industry.
Travel: You need to visit a city to check out a health practitioner there.
Kitchen appliances: You need a Vita-Mix blender to create the smoothie recipes listed on your website.
Services: You need to experience massage for yourself so you can review it.
Supplements: You need to review these health supplements for possible recommendations or coverage on your blog, website, book, videos, etc.
Computers: You need computers to run your online business.
Exercise equipment: You are evaluating the equipment for possible recommendations.
For all the above, when I say "recommendations," that could be something as simple as a list of "recommended products" on your website. You don’t have to be a professional writer, or a professional radio DJ to make recommendations. Can you type a list? Then you can make product recommendations.
The key to all this — and this is really important — is that you have to make MORE money than you spend on all this.
If your business loses money year after year, the IRS won’t let you deduct its expenses, because it figures you’re just trying to have a fake, "shell" business used to write off expenses. But if you actually make a small PROFIT each year (even just a $100 profit), then your business has legitimacy, and as long as you can justify your expenses and incorporate them into your business in a legitimate way, then you can write them all off as tax-deductible (check with your accountant for details).
Now you know one of my own secrets to saving money. All the products I review on NaturalNews are things I purchased, and then wrote off as legitimate business expenses. It’s my JOB, after all, to review and recommend health products, books, services and similar things.
And as a journalist, I travel to find great stories for NaturalNews. I flew to Hawaii to interview Cyanotech (spirulina makers), Florida to interview KC Craichy (LivingFuel), California to participate in trade shows, etc. ALL my travel is business-related. (Otherwise I wouldn’t travel much, because I’m no fan of commercial airlines…)
Ask yourself this: Where are you traveling right now that could legitimately be a business-related expense?
What are you buying right now that could be legitimately related to your online business? What are you reading? Because using this strategy, you can write off audio books, physical books, movie documentary rental services, memberships to the local yoga studio, a video camera, a laptop computer, your internet access fees, an audio recording device, a high-end digital camera, and much more.
Stop wasting after-tax money buying the things you need! By using this small business strategy, you’ll incorporate your purchases into your business and use pre-tax money to purchase them!