Why Having a Business Is So Important To Tax Savings

Control

Owning a business provides access to control over your taxation. As a wage earner, your income is taxed before you even receive it. Federal and state withholdings, Social Security and Medicare are all deducted from your paycheck before it's even issued to you. There are some things you can do to defer the amount of tax on your earned income like retirement contribution, or HSA contributions. This doesn't change the fact that you will be taxed on the net amount of income earned before it gets to you.

Because your earned income is seen as net income to you by the tax authorities, it is pretty cut and dry that they are owed their cut of that amount. The taxable income flow for a wage earner works like this:

Can you see how this give you less control as an employee? You work hard, then before you get a chance to use your money, the government takes their cut and leaves you what's leftover. 

Owning a business works differently: 

Deductible Expenses

By being a business owner, you earn your money and have access to how you spend it before it is taxed. Many of the expenses you have as a business owner become ordinary & necessary for running your business which will qualify your spending as deductible. This also lowers your taxable income. The government taxes what's leftover. Long story short: As a business owner you get access to your money first, and the government taxes the lower amount later leaving you with a lower tax burden. 

How Do I Maximize This?

In theory this sounds good, but how do you maximize this in real life? There are other considerations. What business can I start? What structure do I need? Isn't owning a business risky? What about self-employment tax? How do I keep track of everything? Owning a business is a lot of work, right?

These questions (and more) may show up for you. This is fine. Even if you have a business you may want to know how to maximize it so really does work like what we discussed. Having a real tax strategy in place is a good place to start. Planning is key, and having someone in your corner who understands how you can leverage your business as well as other aspects of your life will be the difference maker.

Schedule a Tax Planning Strategy Session

Whether with me or another good tax strategist, it could be the difference maker in your ability to accelerate your wealth. Taxes are going to be the number one expense in your lifetime. Owning a business gives you access to control over this. I invite you to consider what this makes available for you. What does it make available for your family? Your lifestyle? Your quality of life? The ball is in your court!