Tax Reduction helps you reduce the tax burden in your life in a legal way.Do not waste time check it out now....

Turning Your Hobby Into A Tax Deduction Goldmine

By Sandy Rodriguez

Prior to the Industrial Revolution, most Americans were in business for themselves. That was the primary means to making money in this country. However, with the introduction of factory work and other office work, suddenly the majority of Americans were working for someone else instead of trying to make their own way with their own small business.
In this light, there are effectively two sets of tax rules in America. One is for the individual who works for someone else and earns a paycheck every week. His or her taxes are taken out before they even get to cash the check and then they are left to pay for all their expenses with whatever is left over.
On the other side, there are the tax laws for the business owners. These are totally different rules because the United States really encourages the small business entrepreneurial spirit and the tax laws are structured to help the small business owner. The tax laws allow the business owner to earn the income, deduct all the business expenses and then pay the tax on whatever is left over. As you can tell, that’s completely different than the employee who has to pay their tax bill before they get to deduct any of their expenses.
Okay, so you have this great hobby…now, how do you turn it into a tax deduction goldmine?Or maybe you don’t have a hobby but you want to purchase something and want to turn that into a tax deduction goldmine. How do you do that? Why would you do that?

Well, as I outlined earlier, you WANT to be in business because all the tax laws are stacked against the individual and totally stacked in favor of the business owner.
Let’s start with one example that is more common than not. This one is on network marketing. That’s very prevalent today and most likely will be for years to come.
Let’s say your best friend (yes we all have these friends) finds the greatest network marketing opportunity and it’s wrapped in this great weight loss product (and you maybe want to lose some weight?). Now you’re saying to yourself, I’d love to get this product wholesale so you jump into the business under your friend’s downline. Well, you may not have intended it, but now you’re in business. Now you’re getting what you want for wholesale costs, but you can do better than just save some money. Now, you can start saving some real money on your taxes and creating your tax deduction goldmine.

visit this link :http://tinyurl.com/taxreductioneasysteps

What you want to do now is ensure the IRS knows you INTEND to make a profit at your new venture. There are several ways to do this but in this case, you can send a note to your friend and her upline and tell them just how happy you are you joined up with this great company and how you are planning to make a real killing on the weight loss opportunity you have just been given. Now you keep a copy of that letter and annotate when you sent it. I would send it shortly after you sign up OR if you’ve already started this venture and you’re just learning about this now, you can send a note and tell them that you have been struggling with making a profit and you would like them to send you some ideas and some marketing tips on how they’ve been able to make this work for them. There again it shows the IRS your INTENT to make a profit.

Now, what else would you have to do to make this a business and not get classified as a hobby? And actually, this is a great breaking point to emphasize just how important it is to not get classified as a hobby for your business with the IRS so let me delve into that right now.
The first thing you need to assess in this system is your business practices. Are you in business for a profit? Or are you in business as a hobby? This is a critical question that not only I will ask you, but the IRS is more than interested in the answer you give to this question. Let me explain…
As you may already be aware, THE BEST way to reduce your taxable income is to start your own business. When you are in business for yourself, again, you are taxed on your profits, not the total amount of money you take in (or, in other words, your gross income). The key point here is that “profits” are calculated AFTER you deduct ALL your expenses. Unlike working for someone else where you are taxed on your gross and then you can use what’s left over for your own expenses, when you are in business yourself, you get to deduct all your expenses FIRST and then pay Uncle Sam from what’s left over (if anything!).

visit this link :http://tinyurl.com/taxreductioneasysteps

With that said, what is your current situation? Are you set up as a business or as a hobby? Let me explain the difference. The IRS considers your activities as a hobby if you are treating it as such. In other words, if you are making money doing something you love and you do not keep any good records of your activities or you don’t treat it like a business, you cannot take any losses against that business. Well, you may be saying to yourself, I don’t want to be in business to make a loss. Good point. I agree. However, did you realize you can make a good profit and still have a loss? Hmmm, bet you didn’t think about that. It’s called a paper loss—I like those a lot! But back to the hobby…what is your intent? That’s what the IRS will ask. Is your INTENT to make a profit or are you just chugging along mindlessly making a few dollars here and there or just having fun doing what you like doing?
Here’s the key that you want to make note of: you want to be in business to make a profit. Your INTENT is to make a profit.

Remember, your INTENT has to be to make a profit. You can’t tell the IRS you just wanted to get some great wholesale prices on great weight loss products and expect them to let you start writing off your house or your dog even if it’s true—you NEED to be in business with the intent to make a profit. Now you might be wondering if you have to be doing this full time in order to be considered in business versus a hobby. The answer is no. You can be in business for yourself part-time because your full time job is still working at the factory or someone else’s office; that does not count against you in being an entrepreneur.

Okay, I don’t want to beat that to death, but I really wanted to be perfectly clear on that point. You’ve heard the saying I’m sure, if it walks like a duck, talks like a duck and swims like a duck, it must be a duck. Well, if you look like a hobby, act like a hobby and operate like a hobby, the IRS will consider your operation to be a hobby. On the other hand, if you operate like a business, keep good records like business and plan like a business, the IRS will consider you seriously in business for yourself and allow your business deductions.

So maybe you’re still not sure and you’re saying to yourself, “What’s the big deal if I get taxed like a hobby? After all, if I don’t have a loss and I can write off my expenses against my income, then no big deal. So why is this person going on and on and on?” Okay, I’d probably ask that question if I were you. But here’s the rub and why I keep going on and on because this is a very important point to understand.
As I mentioned, if your activity is considered a hobby, you may deduct the expenses only up to the amount of hobby income; so, again, a loss from a hobby cannot be deducted. But here is the very important distinction that you must understand: hobby expenses must be taken as Miscellaneous Itemized Deductions on your Schedule A. What this means is all these expenses are subject to the "two percent of adjusted gross income" floor, which will limit the amount of the deduction further (and for many of us, altogether!).

So what does it take to look, act and be a business? I know, those of you who have been in business are saying to yourself you know that answer, why is she asking me that? Fair enough. But do you know what the IRS is focusing on; do you know what actions will raise those dreaded red flags?
I’m sorry, I have to quote Jay Leno here because he had the greatest line that fits perfectly here.

visit this link :http://tinyurl.com/taxreductioneasysteps

"Worried about an IRS audit? Avoid what's called a red flag. That's something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That's a red flag." -- Jay Leno
As I mentioned before, good recordkeeping is by far THE KEY ingredient to keeping the IRS at bay when it comes to taking away all your business deductions and ensuring they consider you in business and not operating as a hobby.
What you may not realize is this is not like a court of law.

In a court of law (at least here in the United States I should preface), in a of law you are innocent until proven guilty. Well, don’t you just love the IRS and what rules they play by? When it comes to the IRS, you are guilty until you prove yourself innocent. Yes, I’m not kidding. In a normal court of law, the burden of proof is upon the prosecution and the defendant is not obliged to prove his or her innocence but rather the prosecution must prove his or her guilt. Well, with the IRS, YOU have to prove YOU are innocent—the Burden of Proof is upon you not them when it comes to your taxes. So good recordkeeping is your defense against the IRS and in your best interest to keep all your deductions and maximizing your profits.

visit this link :http://tinyurl.com/taxreductioneasysteps

Okay, so what does it take to have the IRS consider your business to be a business? Well, they have certain factors they look at—they’re not all considered, but here are some of the things they look at to determine if you are operating your business like a business:

- The way in which you carry on your activities in the business, including the methods of operation and the proper maintenance of complete and accurate records (yes, there I go again, talking about those records!);
- Your expertise or experience in your endeavor and any knowledge you gained from experts in the field you are operating in;
- How much time and effort are you putting into your business to carry on the activities of the business—this also includes time spent by your employee or employees and whether or not you have your own full-time occupation. Please note that the fact that you have a full-time job, that you are an employee of someone else does not in and of itself preclude you from being engaged in your own business;
- The expectation that the assets used in the activity may appreciate in value—especially if you will not get any immediate profit from the activity;
- Your prior success in conducting business in similar or dissimilar activities;
- Your history of income or losses with respect to the activity; and,
- The relationship of the profits you earned against the losses incurred; especially if there are only occasional small profits against relatively large amounts of losses.

Now keeping those points in mind, let’s think about some other ideas or expenses you have that you can move away from the hobby mode and into the business mode.
Let’s take another venture that you might not ordinarily have thought of. Let’s say you are a wine connoisseur and just love different wines. Well, how could you possibly make this into a tax deduction goldmine? Tricky at best, but it can be done. You become a wine critic. You can set up a website or a blog (a blog is a “web log” and there are plenty of sites that let you set them up for free). You can make this your Harry’s Best Wine’s of 2009 page and start telling everyone out on the web all about the different wines you love, the history of some of those wines, where they can purchase these wines, etc. You make it an information-packed, informative website and even add affiliate links to get paid extra money on books from Amazon or an affiliate link from eBay on folks selling wine. You now have a presence on the Internet and you are writing off your wines that your spouse is about to shoot you for buying but now you can tell your spouse how great you are because you are making money from affiliate links on awebsite dedicated to you being a wine critic. Whalla, you’re the new hero!

Here’s another idea and this one I am seriously considering for my son who loves everything Hollywood. Become a movie critic. Again, you need your presence on the Internet and now you can start taking all those ticket stubs from the movies and turning them into tax deductions because you have set up your website or blog talking all about the new movies that have come out. You can bring in affiliate links, tie into movie trailers, talk about what’s happening in Hollywood to those particular actors, and suddenly take your passion and expenses into a tax deduction goldmine.

The possibilities are endless and you are only bound by the confines of your imagination. Someone once said to me, “Not everything can be a tax deduction.” My reply simply was, “It can if you work it right!” I constantly think of creative ways to use the tax laws in the people’s favor instead of the IRS. For the people, you could say, that’s me! Now you people, need to be in business. That is the BEST way to turn your fun into a tax deduction goldmine.

visit this link :http://tinyurl.com/taxreductioneasysteps

Tax Reduction

Monday, February 14, 2011

Opening The Vault To Maximizing Your Tax Deductions© 2009 Page 1

Sunday, November 14, 2010

Tax Reduction Easy Steps