When Robert Kiyosaki of “Rich Dad Poor Dad” fame said, “It is not how much money you make but how much you get to keep,” he was talking about TAXES. As a business owner, you get to claim business expenses that employees do not.
For example, if you use a cell phone to make yourself accessible to your clients it is likely that your cell phone bill can be paid for out of your business with pre-tax dollars vs post-tax dollars. Consider that a dollar earned through self-employment is subject to Federal and State withholding as well as the 15.3% self-employment FICA rate. It is very likely that a dollar of earned income will result in less than 50 cents in take-home pay.
Therefore you would have to earn $200 just to have sufficient take-home pay to pay a $100 cell bill with after-tax dollars. However, you would only need to earn $100 if it was paid for by the business with pre-tax dollars. The use of pre-tax dollars is just one example of the way understanding taxes can work to your advantage as a business owner.
Favorable tax treatment is one of the rewards for the risks associated with small business ownership.
Successful entrepreneurs know their way around taxes. Do you?
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