Having your own business has often been called "the best tax shelter in
America." The line between business and pleasure is often fuzzy.
You'll often be able to combine the two, and
take a tax deduction at the same time. Just make sure you you keep
your tax deductions within IRS regulations. If you take advantage of
the tax breaks on this page, you'll reap a completely legal
financial windfall!
Give Yourself Some Tax-Free Fringe Benefits
A tax-free fringe benefit is the best kind of income.
The benefit is a tax deduction for the company, and the employee gets that benefit without
having to pay taxes on it. Here are some great fringe benefits you can
give yourself, as both owner and employee; I will list the tax savings
you'll receive in the table below. All listed amounts are
yearly figures, assuming you're in the 28% tax bracket. For
example, if you get a company car that costs you $2000 per year, you'll
save ($2000 x 28%) = $560 per year, by getting it as a tax-free fringe benefit
and avoiding the federal income tax.
If your state has an income tax, you'll save even more on that!
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Tax Breaks Just For Business 
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Time to complete:
| Varies |
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Money you'll spend:
| Varies |
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What you'll get:
| Hundreds, perhaps thousands of dollars in tax deductions |
List of tax-free fringe benefits:
- Mass transit or van pooling is deductible, up to $100 per month in 2005.
Also, $190 of company-paid parking is deductible each month.
- A company car is deductible, as long
as the car isn't for personal use. Still, if you plan on making a lot
of business trips, it's a great idea. And there's no law against
enjoying yourself while you're on a business trip.
- Up to $50,000 of life insurance coverage is deductible. Any amount
above $50,000 is taxed at lower rates than your other income.
- Child-care and dependent-care expenses are
deductible, if company-provided.
- Medical insurance provided by
employers is tax-deductible. For single proprietors, it's now
100% tax-deductible.
- A Medical Savings
Account (MSA) is available only to people who have high-deductible
medical insurance. You can use an MSA if you're
self-employed (if not, your employer must be providing you with high-deductible
medical insurance.) Around $3,000 per year can be placed in your
MSA, tax-deductible to the company, and tax-free to you (no income tax, not
even a Social Security tax!) If you can
stay healthy until age 65, you can then take money out of your MSA penalty-free.
Before age 65, you can withdraw it tax-free for medical purposes. You
could withdraw the money for other purposes, but you'd have to pay income tax on
the withdrawal, and pay a penalty of around 10% to the IRS.
You can think of the MSA as a 100% tax-free retirement account for
people who are able to stay healthy. With an IRA, you'd have to take a
tax hit at some point.
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Further Reading:
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