Tax Advantages Of Owning a Home Based Business
In this article I want to go over the tax advantages of owning a home based business. I’m going to do it in black and white so it will be really simple.
Meet George and Jane, these two people have a lot of things in common. Each of them earns $3,000 a month and each has a one hundred fifty thousand dollar mortgage at six percent on their house.
The key difference between the two is Jane set up a home-based business. She went to a meeting one night and saw the possibilities of owning her own business and making extra income so Jane joined a home-based business.
Now George was at the same meeting but George just didn’t get it. He didn’t see the advantages to owning a home-based business in his taxes so he just kept doing what he’s been doing and he just keeps overpaying his income taxes every single month now.
Breaking Down The Numbers
Let’s compare how much money they both bring home. Both make $3,000 a month, George pays $500 a month in income tax but because Jane owns her own business and gets to write off all her business expenses Jane actually doesn’t have to pay income tax.
Every month George lives on $2,500 a month, Jane lives on $3,000 a month. George has been over paying his taxes 200 dollars every single month. He gets a $2,400 tax refund every year, he really loves getting that money so him and his family can go on vacation.
Jane realized that you’re lending money to the government and they’re not paying you any interest. She also realized that she could use that money to pay off interest-bearing accounts.
So she corrected her income tax by putting the right number of withholding allowances and now she does not over pay her taxes. That means that George has $2,300 a month to live on but Jane still three thousand dollars a month to live on.
Their mortgage payments are $900 a month and they want to start paying down their mortgage. George has nothing extra but Jane now has $700 a month extra because she’s not over paying her taxes and she’s not paying any income tax because she has tax deductions.
Jane took that $700 and paid off her mortgage. Both would be living on exactly the same amount of money every single month. After five years George still owes $140,000 on his home.
Jane only owes ninety one thousand dollars on hers simply because she started a home-based business. Now I’m not even counting the income she makes off her home-based business, just the tax advantage.
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Life Changing Results By Claiming a Home Based Business For Tax Purposes
Ten years and seven months into this comparison George still owes one hundred and twenty four thousand dollars on his house. Jane’s home is now paid off. She’s paid herself completely using the tax advantages of a home-based business.
Jane invests that sixteen hundred dollars a month that she was paying on her house payment and at nine percent in her retirement account.
So twenty years after we started checking on him, George still owes eighty one thousand dollars on his mortgage. Jane now has three hundred eighteen thousand dollars in her retirement program and a paid for house.
30 years and George’s house is finally paid off but he has zero in his retirement account. George paid one hundred and seventy four thousand dollars in interest alone on that house.
Jane not only has her house paid off early but she now has one point three million dollars in her retirement program. Simply because she started a home-based business Jane only paid 53,000 dollars in interest.
Learn more about: Home Based Business Tax Savings
Tax Advantages Of Owning a Home Based Business – Conclusion
I hope you’re starting to see the tax advantages of owning a home based business and exactly how it can change your life. I wish I had this information when I was in my 20’s and I hope you take advantage of these benefits.
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