Question by jojo: has anyone started a small business to avoid taxes on other income?
just wondering if anyone has started a small business just to get the deductions. i was hit hard by the tax man last year and i would consider myself lower-middle class! i was thinking of starting AVON or something so that i could have some deductions for next year. thanks
Best answer:
Answer by v b
Your goal is what again?
You want to start a small business to get tax deductions? You do realize, of course, that the small business must make money or the IRS will reclassify it as a hobby and then limit the deductions to the income it brings in….
What do you think? Answer below!
Not a good idea for a couple of reasons.
First, if you start a business without the intention of making a profit then it is a hobby, not a business. Hobby losses are only deductible up to the amount of income… hence, no income = no deductible expenses.
The second reason it is not a good idea is that deductions do not save you taxes dollar for dollar. In other words, if you are in the 15% tax bracket then for every deductible dollar you spend you only save 15 cents in taxes. Doing the math… you end up 85 cents in the hole. It would have been better to pay the 15 cents in taxes and use the 85 cents to do something you enjoy.
Look into other options. Open an IRA or contribute to your employer-sponsored retirement plan. Talk to a tax advisor or financial consultant. There are several better ways to invest in the future while saving on income taxes today.
Best of luck.
Well starting a business has its advantages
and disadvantages. The first thing is you
do have to have some kind of income to
this business so as not to make IRS
suspicious, and you could lower that
income to 0 to make you get a loss on the
business, but if youre ever audited the
first thing they will ask fromyou is proof
of those deductions, now theres some
that you can get around but not all of them
mileage is a good deduction, depreciation
of the car, home office, but if you have
things like supplies, tools, rent they will
certainly want to see receipts or invoices.
Especially Avon, ive had clients where
ive done taxes on, specailly Avon, they
have to buy inventory, give samples,
gift baskets, so its up to you really what
kind of risk, you just weight the risk vs
maybe just owing a little, it all depends
I dont know how much you made or what
you do, you dont specify. Just be careful
Good luck!!!