How to Reduce Your Taxable Income (Time to Take Action)
If you made significantly more money with your online business this year than you did last year, CONGRATULATIONS! That's wonderful news.
However, next year at tax time you might not think so — if you've got to come up with an extra $17,000 to fork over in April like I did one year.
Basically, it comes down to how much money you made (which is the overall amount that you took in minus expenses). That’s what we’re taxed on.
Quick explanation (with totally hypothetical numbers):
- Let’s say that you made $30,000 in 2017. Your quarterly taxes that you pay in 2018 might be then set at $2000 every 3 months. ($8000 for the year)
- Now, what if you made $60,000 in 2018 – and you’ve only been paying $2000 every 3 months? In April, you may have a day of reckoning. (You will have paid $8000, but then may owe as much as another $8000 for taxes on the added income.)
So, you’ll owe a chunk of money in April.
And of course, when you add a zero to those income and tax numbers it becomes even more important to stay on top of it!
At the end of the year, I normally end up making several significant (but smart) purchases in order to decrease my Taxable income for next year.
If you're in the same boat, I have some ideas for you that will help you to spend SMARTLY.
In some instances, today is also THE day to get over procrastination and make those decisions that you've been putting off that you know are the right move for your business. You'll be glad you did it today rather than next month as most people do.
Three years ago, in December, I purchased approximately $5000 in advertising and paid my affiliates early and prepaid some subscriptions in order to lessen my income. (The expenses get subtracted from my income so my overall income would be less — therefore less taxable income.)
So, since advertising is an expense, I choose to spend money on it, knowing that it’ll pay me back (and then some) the following year.
As to how much is the right amount for you to spend… you’d have to run those numbers with your CPA/Accountant. Normally I spend a bunch in December, then we run the numbers again in January to see how much I should put into my SEP (which is like a 401K) to give me the best tax breaks in April.
WARNING!!!! Don’t go spending money you don’t have on things that you don’t NEED. You’re still spending money.
However, if you plan to buy things anyway.. or have a birthday coming in February like I do and want to treat yourself to some business items, then buying early can be a smart move – especially if you're planning for growth for next year.
*AND Contact YOUR CPA/Financial Adviser before making any decisions.
For instance, I do some consulting for high level marketers on their affiliate programs and passive income — and I get more than my regular amount of requests in December — probably because they're planning for next year. So, why not have them prepay and save on their taxes?
Here are my recommendations for some items you might purchase (based upon my favorite things)…
They are also products that I personally use in my online business.
For when you’re on the go.
- Kindle – Read and learn on the go.
- A Cell Phone Upgrade.
- Good Headset(s) for your Cell Phone. I keep one in my travel bag, one in my gym bag, one by my bed and one in my purse.
- Amazon Gift Cards to stock up on books and audio books, too.
- Audible credits. I can never have enough of these.
- iPad. I keep mine in my purse. It’s so much easier than carrying around a laptop.
Business Tools & Software
Having the right tools for the job can make all the difference.
- This tool that makes repurposing your blog posts easy.
- Aweber – The service I’ve used since 2005 to manage most of my newsletters, ecourses, and ezines. (If you get emails from me, they probably come through this list managing service.)
- LeadPages– LOVE LOVE LOVE this.
- AW Pro Tools – If you're a big user of Aweber, this is a great add-on.
- Basecamp – Allows you to track projects and who is working on each one.
- Password Manager Program – Keeps track of all of your logins, usernames and passwords, so you don’t have to. (Try it free.)
Get a Coach
Hire a coach or consultant to come into your business and tweak/refine it to make you more money.
- If you want to work with me, here's where you can find more info – Hire Me
- If you're just getting started out, then I'd recommend that you Work with Kelly McCausey (she is patient and tough)
- I also love love love this guy, too. He's awesome and I've worked with him a lot.
- Luggage for traveling to cool conferences to hang out with me.
- Ticket to NAMS for April.
- For the ladies, spoil yourself and come to Beachpreneurs!
- Beach Camp is our hotel event for all female entrepreneurs.
- The Beach House is a mastermind retreat that's held in a house on Pensacola Beach. (We have payment plans to make this affordable.)
Personal Development & Business Books
Right now, I'm enjoying “You are a Badass” and “The Year of Yes“.
- Kick butt mic.
- Headset with a Microphone. For recording tutorials and webinars on your PC.
- Green screen
- Video Camera
- New Laptop (Time for that MacBook Pro?)
- New Desktop
Done-for-You Content – Because It’s AWESOME!
Do you really love staring at a blank screen? Why do things the slow way when you've got these shortcuts that can help?
- PLR Articles Because you can always use more articles for your blog.
- Coach Glue Workshops, Workbook and Planners.
- Facebook Status T-shirt
- Cool Business Cards. Zazzle has really cool “skinny” & “chubby” sized cards.
Join an Awesome Community
Sometimes having the right community can make all the difference. Here are some places where I hang out.
- Earn1kaDay (Mostly marketers. I bought the lifetime option. You get all of Dennis' products he's ever created. It's pretty huge.)
- Your Shining Business Academy (Mostly creative business owners. Lots of love and support.)
Obviously Beachpreneurs is a great community, too, but that one is in person. 🙂
Stuff for your Office.
To make yourself more comfortable and productive.
- Desk Pad Calendar. For scheduling and staying organized.
- Handerpants – in case your hands get cold while you’re working. 😉
- Bacon Envelopes.
- Comfortable desk chair (if you are having back problems or just want one) or an exercise ball, if you prefer to sit on one like I do.
- Ergonomic keyboard or mouse.
- Space heater. brrrrr….
- Hire a Virtual Assistant or Copywriter to write press releases, articles, sales pages, or design graphics for you.
** Most of the stuff above is tax deductible.
Awesomize the WORLD!
Of course, I'd be remiss if I didn't mention that it's also a great time of year to donate to your favorite charity.
Whether your heart is with orphans, animals, veterans, homeless, abused women and children, community development, research & health, the environment, your own church, or any number of other great causes – today's a great day to support your favorite organization.
Keep more of your money instead of handing it to Uncle Sam.
Best of luck.
PS. Did I miss anything? Let me know!
I appreciate shares and I adore comments! Please share your thoughts.
AriffinJanuary 16, 2016 at 4:01 am
First of all happy new year to you. Tax can be so complicated for ordinary people like me. Where I came from, income generated from online business such as blogging still not taxable. Unless the blog is declared as a business entity.
For offline businesses, basic calculation for taxable income is Income less related expenses to the business. So, what we can do is to spend on items that can be used both business and personal. For example such as car and health insurance. So instead for being charged for income tax, tax will be paid under corporation tax section.