Want to save money on your taxes? What if I told you the average family can save anywhere from $4,000-8,000 per year on their taxes just by doing one thing?
I've been doing this for almost 25 years… and I save thousands on my taxes every year. Shockingly, the majority (around 60%) of the population doesn't even know about it!
(Disclaimer: I am not an accountant. You need to talk to your tax preparer to get financial advice about what you can and can't claim. In fact, for this reason, I never do my own taxes. I always get advice from my accountant.)
The Average Family is In Debt
The average American family is in debt.
Here it is in a nutshell:
- The average household income is $60,000.
- The average tax bill is $11,000.
- After taxes, the average family is left with $49,000.
- The average cost of living is $53,000 (cost of living = rent or mortgage, food, taxes & healthcare only)
So the average American family is $4,000 short after they pay taxes.
Why We're In Debt: Inflation
If you understand what “cost of living” means, you'll see why so many of us are in debt.
Most financial gurus tell you if you just stop drinking Starbucks, you can save money. In other words, you're just spending too much on stuff.
While that may be true — you may be spending too much on stuff — the real reason we are in debt is due to inflation and the rising cost of living.
As I explained above, cost of living just means housing, food, taxes and health care.
While it may help to make coffee at home instead of spending $5 on a latte, the real reason we are in debt is due to 2 things: (1) inflation, in other words the dollar is worth less than it used to be, and (2) the cost of living has increased, while wages have not.
According to Mari Adam, Certified Financial Planner and President of Adam Financial Associates in Boca Raton, Florida:
“What would have cost you $100,000 in 1976 would cost you $381,000 today. That's just the inflation, and there are so many other things that have grown very expensive,” says Mari Adam. (Source)
It's not just general inflation. Some things cost way more than they used to. For example, housing. Between 2000 and 2007, housing costs increased 65%, while wages only increased 17%. (Source)
The Number One Thing You Can Do to Save Money on Your Taxes
So what do you do? What if you're already cutting your budget as close to the bone as possible, and working as many hours as you can work…
One thing you can do is save money on taxes. And there's ONE thing you can do to potentially save thousands on your taxes.
The solution is to start a home based business that pays 1099 income (not W2).
What's 1099 Income?
Huh? What's 1099 income you ask? Let me explain…
The majority of Americans (around 60% as of 2014) earn W-2 income. (Source) W-2 income is the money you get from a job.
There's another kind of income, called 1099 income. This is money you get paid as an independent contractor.
This can be money you get paid for anything you do as a small business.
Here are some examples of businesses that pay 1099 income:
- A blog or YouTube channel
- An Etsy store
- Driving an Uber
- Part-time housekeeping business
- Babysitting, pet sitting or dog walking
- Graphic design
- Social media manager
- Virtual assistant
- Portrait photography
- Network marketing business
You can work part-time on your business on weekends or in the evening, and make extra money. But it's not the extra money you make that helps you save thousands. It's the tax deductions you get from having a small business in the first place.
In fact, even if you don't earn a dime, you have 3 years to take a loss and STILL claim deductions on your taxes.
How Much Can You Save on Taxes with a Small Business?
According to CPA Courtney Epps, on average, she saves people who have a home-based business anywhere $4,000-8,000 per year.
Guys, that's $300-700 per month. What could you do with an extra $300-700 a month?
Here are some ideas:
- Pay off credit card debt
- Pay off student loans
- Save money to invest in real estate
- Go on family vacations
- Save for a house
- Save for children's college fund
- Pay for a housekeeper or babysitter so you can invest more time in your business
And here's the mind-blowing part… that $300-700 per month is just from the tax deductions — that does not include the income earned from the business. Even if you made NO money from your small business in the first few years, you can still save that money on your taxes.
What Kinds of Deductions Can You Get From a Small Business?
I've been getting 1099 income for about 25 years now. I've always had a part-time side hustle.
When I was in my 20s working a W-2 day job in Silicon Valley, I did 1099 freelance work at home on the weekends designing websites. I also had a network marketing business, which allowed me to write off even more.
Here are some of the deductions I get with 1099 income:
- Home office
- Computer, electronics & photography equipment
- Home internet
- Business travel
- Business meals
- Books & magazines
- Automobile expenses
- Personal assistant who helps me run errands and do things locally
- Virtual assistant who works remotely helping me do things online
I'm also about to give my 12-year-old daughter a part-time job helping me with my business. Did you know you can pay your children (aged 7 and up) up to $1,000 per month? That's $12,000 a year in deductions.
An Extra Few Hundred Dollars a Month Could Save You in the Next Crash
Courtney Epps also said that in the housing crash in 2008, 70% of foreclosures could have been avoided if the families had an extra $350 per month.
I don't know why everyone isn't screaming this from the rooftops.
Guys, we know another crash is coming — all the financial experts are saying it. Don't believe me, search on Google and YouTube. It could happen any time now…
Saving Money Is Not the Answer
In conclusion, the answer is not to try to save money by not going to Starbucks.
The answer is to start a small business and reduce your taxes right off the bat.
Then you can reinvest the money in your business. Over the years, as your business grows and shows a profit, you can invest that money in real estate and other assets like gold, cryptocurrency, stocks, other businesses, etc.
How to Choose a Small Business
If you're thinking of starting a small business, something you can do from home part-time, I have spent a lot of time researching the different options.
How to Choose the Best Side Hustle