Question: 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
Answer: 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.
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