Which Tax System Are You In?
Tuesday, January 6, 2009 at 4:22PM The United State has Two Tax Systems;
One for employee-which includes most working Americans
Two for business owners- A very different and much better system
The first system is for employees, or W-2 wage earners who work for someone else, in which they are very limited in what they can write off. There are very few tax deductions available to them; mortgage interest & real estate taxes, standard dependent deductions, retirement plan contributions, charitable and church donations.
Here's how it works for an Employee
- You work to earn a wage
- Immediately lose a large portion of that hard-earned-wage to taxes
- You get what is left after taxes are withheld.
The second is for a business who is in engaged in striving towards earning a profit and are entitled to a large variety of legal deductible business expenses in that pursuit of income and profit.
Business owners have a very different three step process
- Earn revenue from selling goods or services
- Spend what they need to on operating expenses to keep business financially sound
- Then pay taxes only on whatever is left.
What can Business owners write off?
The list is long and can vary depending on the type of business that it is but here are some examples; gas, electric, water and sewer, computers, telephones, paper and even postage, furniture, cleaning services, residential repairs/remodeling, financial fees, professional fees, taxes and licenses, lunches-dinners-ball games- theater tickets, internet access fees, computer supplies, software, learning materials, advertising... any expense that qualifies as "ordinary and necessary" to operate their business.
Why...
Look the government knows that when you are working for someone else your income potential is very restricted so they make sure they get their cut first through payroll deduction and then send the rest to you, AKA - Take Home Pay. They know that if they take their portions first before you see your entire earnings then you are less likely to realize exactly how much they are taking and less likely to cause a tax payer revolt.
Fact- In 2005 the IRS combined with "Enforcement Actions" (Audits) raked in $2 Trillion " - Mark W. Evans, address delivered at the National Press Club, Washington DC, March 15th, 2005.
Now Imagine how much less you would pay in taxes if you only had to pay Uncle Sam a percentage on your "after-expenses" money...like businesses do.
Why would Uncle Sam allow this...
They recognize that when someone owns a business their income potential is now wide open and they hope that you go out a make large amounts of money which will funnel back through the system, bottom line Congress passed a series of tax laws to encourage and reward the operation of small or home based businesses because it is Good For The Nation's Economy!
I'm Not suggesting that you attempt starting a large corporation, a simple home-based business offers more tax breaks than what the wealthy can get with an expensive tax lawyer.