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Tax avoidance Strategies?
I plan on going into business soon. And from my projections, I could possibly make a lot of money. But let's say I made 1 million from my business, I don't believe that the Government should be entitled to $350,000 of my income money just because they exist and they want a cut. What are legal ways I can reduce the taxes I will have to pay?
My cousin told me of a method: To make a separate business entity to put my income in. So when it comes time to pay taxes, the IRS will see your not making much of anything. And use your separate business entity for your income, and declare what you spend as a business expense. But if I wanted to go out for dinner with family, could that really be declared a business expense? Or if I wanted to buy a porsche, that couldn't be declared a business expense. And besides, that would raise a few eyebrows at the IRS if I personally have a porsche, when they can't really see that im barely making a lot. So how does it work? Help!
- MathewLv 71 decade agoFavorite Answer
Relying on tax advise from your "cousin" may be a little risky. My guess is that he has no formal tax training. If you want to go into business you should consider getting advise from a tax professional.
- StephenWeinsteinLv 71 decade ago
The best way to avoid taxes is to make much less money, not a million dollars.
Your cousin's suggestion will not help you save taxes. The business entity will need to pay taxes on its profits, and you will need to pay tax on the money that you receive from the business entity, so there will be more tax altogether, not less.
Declaring personal expenses as business expenses and trying to deduct them is very much illegal. You can be sent to prison. Paying taxes may not seem great, but it is much better than prison.
Due to a recent change in the rules, even when a meal can be deducted (such as for a legitimate business meeting), only 1/2 of it can be, not all of it.
If a business entity purchases a car and you use it for non-business purposes, then you must keep track of the mileage and may need to pay more tax than if you purchased it yourself.
- JudyLv 71 decade ago
Legitimate expenses for making money in your business are deductible, whether you incorporate and make the business a separate entity or just file it as a sole proprietorship which means the income and expenses go on your personal return. If you incorporate, then your BUSINESS must also file a tax return.
Taking a client out to dinner can be partially deductible. Taking your family out, no. Auto purchases might be depending on circumstances and what you use the vehicle for - business use yes, not for your personal miles.
You'd be wise before starting your business to talk to a CPA rather than getting your tax advice from your cousin.