Either this guy doesn't understand how income tax works, or I don't. (Or he's just lowkey recommending tax fraud)
What you're missing is tax deductions.
when you operate as salary, you get no deductions and pay maximum taxes.
When you operate as sole proprietorship you can deduct 'business expenses'
Business travel and parking? Deducted.
Any new gadget or widget? Deducted.
It doesn't create new money, you have to still earn the money in the first place, you can't go buy a porsche but you'll be surprised at how many things you can get away with at least partially deducting and when you do this to a full extent. You end up paying little to no income tax. You take home more while earning less.
And then what happens when you want to pay yourself a salary? Aren't you essentially paying corporate tax rate and income tax on that amount? Maybe that doesn't apply for a sole proprietorship, but does it for a small business?
In the US, at least, the IRS frowns a bit at people over-using business deductions. "Any new gadget or widget" might be deductible if your business includes, say, reviewing new gadgets and widgets. If you're a software developer, though, kitchen gadgets--for example--aren't generally considered deductible. In fact, if you're a software developer, very few things are.
In the US, at least, the IRS frowns a bit at people over-using business deductions.
Fair, tax laws are different everywhere. Your mileage may vary.
"Any new gadget or widget" might be deductible if your business includes, say, reviewing new gadgets and widgets. If you're a software developer, though, kitchen gadgets--for example--aren't generally considered deductible. In fact, if you're a software developer, very few things are.
The magic is in how you justify the expense as part of the business. Nothing stopping you from putting crappy reviews online for everything you buy and then deducting your life expenses.
Sure hope you're getting advice from a tax professional because just deducting every gadget you buy from Amazon is not how it works. You have to prove to the IRS (if audited) that the thing is 100% for business use. The rules for stuff like home office are byzantine and complex, getting down to the level of how big the space is and how much time you spend inside it a day.
Comments
What you're missing is tax deductions.
when you operate as salary, you get no deductions and pay maximum taxes.
When you operate as sole proprietorship you can deduct 'business expenses'
Business travel and parking? Deducted.
Any new gadget or widget? Deducted.
It doesn't create new money, you have to still earn the money in the first place, you can't go buy a porsche but you'll be surprised at how many things you can get away with at least partially deducting and when you do this to a full extent. You end up paying little to no income tax. You take home more while earning less.
And then what happens when you want to pay yourself a salary? Aren't you essentially paying corporate tax rate and income tax on that amount? Maybe that doesn't apply for a sole proprietorship, but does it for a small business?
Payroll is a deduction as well.
You only pay taxes on profit. If you paid taxes on gross revenues it'd make running any business basically impossible.
In the US, at least, the IRS frowns a bit at people over-using business deductions. "Any new gadget or widget" might be deductible if your business includes, say, reviewing new gadgets and widgets. If you're a software developer, though, kitchen gadgets--for example--aren't generally considered deductible. In fact, if you're a software developer, very few things are.
Fair, tax laws are different everywhere. Your mileage may vary.
The magic is in how you justify the expense as part of the business. Nothing stopping you from putting crappy reviews online for everything you buy and then deducting your life expenses.
Sure hope you're getting advice from a tax professional because just deducting every gadget you buy from Amazon is not how it works. You have to prove to the IRS (if audited) that the thing is 100% for business use. The rules for stuff like home office are byzantine and complex, getting down to the level of how big the space is and how much time you spend inside it a day.