This may be a decade of tremendous corporate profits and economic
growth, but for the vast majority of North Americans, the 90's
have been a dismal, uphill climb. And many economists believe
that this next, new millennium won't be getting better any
time soon.
Why?
Changing business and government attitudes are the reason. There
has seemingly been more anti-business legislation in the last
decade than in any other this century. Stronger employment and
labor laws, the Age Discrimination in Employment Act, the
Comprehensive Omnibus Budget Reconciliation Act (COBRA, which
includes mandating health
insurance for workers for a period
of time after they leave employment), safety laws, much tougher
laws for discharging workers, more liabilities for lawsuits,
Family Leave Act, Americans with Disabilities Act (which is
creating immense numbers of lawsuits), along with higher minimum
wages and fringe benefits.
Just reading this list is exhausting.
While these acts have beneficial and protective aspects, they
have also encouraged businesses to move their facilities. That
"sucking sound" popularized by Ross Perot is not just down to
Mexico, but elsewhere as well. The result has been a dramatic
loss of heavy industry in the U.S.
The young and the middle-aged alike are realizing that their
dream of "having a job with a company forever" is an illusion.
Companies have been downsizing, rightsizing, and capsizing for
some time now, and they continue to do so - more now than ever
before. Even the federal and state governments are getting into
the act with layoffs and attrition of jobs.
In addition to all this uncertainty and mutual lack of loyalty
between companies and employees, even the workers who do not
keep their jobs have no guarantee of promotions due to the
shrinking number of management positions. These circumstances
aggravate the already tryingly long commutes in rush hour traffic
and increasingly typical frustrated boss-spelled backwards, that
double S-O-B.
Finally, if all this isn't bad enough, under recent tax laws
employees are shafted more than ever with limits and thresholds
for their employee deductions and higher social security tax
limits. This results in more couples working than ever before
and, on many occasions, working more than one job. It is now
almost impossible to have only one job in the family and make
ends meet! Today, many households need three incomes just to
survive.
Sadly, even having more than one job does not produce any major
positive effect on most people's bank accounts. Why? Because of
tax laws. This was well illustrated in 1994 by Jane Bryant Quinn
in her Woman's Day article on "How to Live on One Salary."
Where The Money Goes
Ms. Quinn's example assumed that a man was earning $40,000 per
year. His wife (we will call her Lori) wasn't working. They
had more month than money. (Sound familiar?) Lori subsequently
got an administrative job for $15,000 per year. You would think
this would improve the family's financial situation, but when
Ms. Quinn examined the economics of getting this extra income,
the results were startling!
Lori had to pay federal and state taxes on her new income.
Since they filed jointly, the family's combined income was
what established their tax bracket. She paid $4,500 in new
taxes, most of which was non-deductible, for federal and state
income tax.
Lori had social security withheld from her paycheck at the rate
of 7.65 percent, which amounted to an additional nondeductible
amount of $1,148 being extracted from her salary. She also had
to commute to work 10 miles a day round trip, which is probably
conservative for most people. This resulted (in 1995) in
nondeductible commuting costs of $696.
Lori also had some child care expenses, which give a partial
tax credit. Ms. Quinn figured that the amount spent over and
beyond the tax credit was $4,250 per year.
Lori also ate out each day with colleagues, spending an average
of $5 per day, five days a week. This results in a nondeductible
expense of $1,250 per year. (I would love to know where she
ate fore only $5!)
Now that Lori has a job, she has to have professional clothing,
this means a hefty dry cleaning bill. Ms. Quinn assumed that
Lori's increased expenses here amounted to an extra $1,000 per
year, nondeductible, of course.
Finally, with both spouses working, Lori wasn't in the mood to
cook dinner every night. They bought more convenience foods and
ate out more frequently. This resulted in increased food costs
of a nondeductible $1,000 per year in minimum.
Add it all up and Lori's take home pay was a paltry $1,156 a
year, for which she had to put up with a daily commute, an
unpleasant boss, and corporate hassles. (See the following
summary of all of these numbers, so you can do the math for
yourself.)
No wonder more and more people are starting home-based
businesses. In fact, there are currently an estimated 30
million people working from their homes. This number is
expected to more than triple, to 97 million, by the year 2000,
and to keep on growing. This has become and will continue to
be one of the greatest mass movements in the U.S.
Why a Home-Based Business Makes So Much "Cents"
There are many reasons why so many people are favoring
home-based over traditional business.
There is no commute (unless you have a really big home), no
boss, little if any chance of lawsuits, must lower overhead,
no employees, (or few), and far fewer government restrictions.
In fact, many of the laws previously cited don't apply to small
firms with few or no employees. It is for these reasons,
according to Entrepreneur magazine, that 95 percent of
home-based businesses succeed in their first year and achieve
an average income of $50,250 per year with many earning much more.
There are really two sets of tax laws in this country. One
is for employees, and it allows deductions for individual
retirement accounts, 401(k)s (if you have one set up by your
company), interest and property taxes on your home (which some
in Congress want to do away with ), and charity. Then there
are the laws for home-based business people who conduct their
business either full-time or part-time. They can deduct, with
proper documentation,their house, their spouse, and even
children (by hiring them), their business vacations, their
cars, and their food with colleagues. They can also set up a
pension plan that makes any government plan seem paltry by
comparison.
For Lori - and for you - the meaning of all this is simple:
Lori earned $15,000 in salary as an employee, but took home
only $1,156. She could have netted the entire $15,000 had she
earned it in a home-based business!
This is an increase of almost 13 times her take-home pay as
an employee.
Notice that Lori is not spending dramatically more money than
she is currently spending. She would eat out anyway, go on
trips and drive her car the same as before. By having a
home-based business, however, many of their expenses become
deductible. This concept is known as "redirecting expenses."
With a home-based business, she can now deduct some of the
expenses that she is incurring anyway.
Renegade Strategy: If you don't have a home-based business,
start one!
In addition to all the benefits mentioned above, Congress
will subsidize you while you are growing your home-based
business. If your home-based business produces a tax loss
in the first year or so, you can use that tax loss against
any other income you have. It can be used against wages earned
as an employee, dividends, pensions, or interest income-or
you can use the loss against your spouse's earnings if you
file a joint return.
If the tax loss exceeds all your income for this year, no
problem. You can carry back the loss two years and get a
refund from the IRS for up to the last two years of income
taxes paid, or you can carry over the loss twenty years. You
read it right: You can offset up to 20 years of income!
Here's an example:
Mike earns $50,000 in a job with the government. If he starts
a home-based business that generates a tax loss of 10,000, he
only pays tax on $40,000.
Renegade Tip:
You can never lose a properly documented business deduction.
In fact, if everyone in the U.S., who is employed full-time
began a home-based business, used the strategies I suggest,
each household could easily save between $2000 and $10,000
in taxes each year. If all employees in the U.S. did this,
the tax bite of the IRS would be reduced by a whopping
estimated 300 billion dollars annually. Of course, Congress
would have to change the laws for this to occur.
Renegade Strategy:
Get LUCK - Labor Under Correct Knowledge.
Can You Succeed In a Home-Based Business?
Research has constantly shown that it rarely the business that
determines success or failure. It is usually the business owner.
Why does one person succeed and another fail at the same business?
Two words - Knowledge and Action.
Some people want the benefits of having their own business, but
they don't take action. The result is business failure.
Then there are the people who are always working. The take
action but still fail. The reason is that they are not taking
the correct actions, the knowledgeable actions, that will bring
the desired results. Again, business failure.
It's like drilling for oil. If you set up a drilling rig in your
back yard, it is going to fail at producing oil unless your back
yard is in Texas or Alaska. The same rig in a good field will
produce a gusher, because it was placed where oil was known to
exist.
The point is that most people who get excited about starting
their own home-based business do so without all the necessary
knowledge. Consequently, many people quit before they acquire,
through experience, the knowledge they need, without realizing
that they are getting substantial tax breaks. This leads to
another strategy....
Renegade Strategy: Learn to duplicate the success of others.
Duplicating the strategy of others is much quicker and more
effective than going to the school of hard knocks.
It is also known as modeling, which is well-illustrated by the
way The McDonalds Corporation blazed a trail to success that
many have since followed.
In the early 1950's McDonald's and other start-up companies
discovered that they could grow many times faster than the
conventional firms through franchising. Instead of the company
investing millions of dollars to build new stores, they let
independent franchise do it for them.
It seemed like a great idea, but at first no one figured out
how to make it succeed on a consistent basis; therefore, the
media attacked relentlessly and continually. News articles
featured destitute families who had lost their life savings
through franchising schemes. Virtually every state attorney
general in the U.S. condemned the new marketing method. Some
congressmen even tried to outlaw franchising entirely.
Over the years, however, Ray Kroc and his management team at
McDonald's developed a turnkey franchise business team at
McDonald's franchise. The newfound success-from the
system-turned public perception of franchising around. Today,
virtually every franchise business models-to some extent-the
franchise business system created by McDonald's, making
franchising one of the most respected ways of doing business
in the world.
Modeling is simply learning what other successful people
have done to achieve success in a specific area, and then
doing the same thing. Someone said that "education is the
shortcut to experience." With modeling, you literally
leverage your own learning with the collective years of
learning through experience of many others. Modeling the
success of others saves both time and money and reduces
frustration and stress.
The light at the end of the tunnel, for you and millions
of others today, is the financial opportunity that starting
your own business offers. If you have one going already,
then make sure you are enjoying the many financial advantages
to which your smart choice entitles you. The tax advantage
alone can make a home-based business the single best financial
move you could ever make.
Sandy Botkin wrote this article.
Entrepreneurs click here:
http://www.enterprisesmnm.com/
