Should I start a business to lower my taxes?

I get asked this question all the time: Should I start a business to lower my taxes?

Every time someone asks it my immediate reaction is to feel that there MUST have been a part of the conversation that I missed. 

My response is generally to ask:  “Well, were you already planning on launching a business anyway?”

Because you should start a business if you have an idea, product, or service that you want to sell & that you think you can generate revenue from…In short, you should start a business if you already SHOULD BE STARTING A BUSINESS. 

The idea that you’re just going to go out and make up a business just to start deducting your personal expenses….is just a really bad idea: you’re only asking for trouble & the tax code doesn't work like that.  

Don’t get me wrong, if you actually have self-employment income, there are some great tax advantages & specific tax strategies to utilize: 

• Deducting Expenses attributable to the business 
• Deducting home office if you work from home (or separately, if you don’t, utilizing the Augusta rule to rent out your home to your business for under 14 days) 
• Increased access to Tax-Deferred retirement accounts (Solo 401k, Solo Roth 401k, SEP IRA) 
• Setting up an S Corp and paying yourself a W2 salary and taking profit distributions to lower self-employment tax 
• Paying your spouse & kids for legitimate work (and then re-investing your kids’ money into a Roth IRA now that they have earned income) 
• Potentially qualifying for the Qualified Business Income Deduction (QBI) to lower your taxable earned income 

As a CPA colleague of mine, Steven Jarvis, likes to say “Taxes are a passenger on the bus, they shouldn't be driving the bus." 

In other words, we want to make sure you're planning for what makes the most sense for your entire financial situation…rather than trying to fit a round peg in a square hole to minimize taxes. 

We want to make decisions that align with your goals, financial priorities, and lifestyle and then make sure we are doing it tax efficiently. 

I am available to speak over a 15 minute Right Fit call if you feel you could use some help navigating your financial situation.

Together, we can determine if our Financial Life Plan® process is the right fit for you.