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QUESTION: I am a Diamond Ambassador with Neways International. Recently I attended a Neways University where someone quoted you as saying that just by being in a home based business that a person can save between $3000-$5000 in taxes. Having been self-employed most of my life I understand about home based business tax deductions. My question is this. At what point would someone get those kind of deductions? Would that be a $30,000 a year income earner, a $40,000 a year income earner? More? Thanks for helping us fight the good fight. ~ Neways Diamond Ambassador SANDY'S ANSWER: You are giving me a great question. You have raised one of the biggest myths in this country! In fact, if most network marketers understood this issue, there would be a lot more recruiting going on. The income level is only important in determining how beneficial a home-based business tax loss is to you. It is total irrelevant, however, in being able to take the loss as we will discuss below.First, let me state one thing. IRS has stated that network marketing income is subject to social security; thus, it constitutes being a business! As with all businesses, if your business generates a loss, you may use that loss against any form of income such as wages, rents, pensions, and even against other business income.
Observation: The higher your other income, the more beneficial a tax loss from a home-based business becomes. The reason is that the higher the income, the higher the tax bracket. Thus, if you are in the 30% tax bracket between federal and state and you have a $10,000 tax loss from your home business, this will save you $3,000 in taxes. If you are in the 50% tax bracket, you will save $5,000 in taxes from the loss. If your loss exceeds you and your spouses income, you may carry back the loss two years and get a refund from the federal and state governments for some of the tax paid in the last two years or you can carryover all business losses TWENTY years, which will offset up to the next twenty years of income! Thus, you never lose a properly documented business deduction.
I should note that I have a tape that explains this to prospects entitled, "Underpaid and Overtaxed" (US and Canadian Edition) that you can get by calling publishers recording at 800-318-1997. If they don't have it, you can call me at my office at 301-972-3600 to get another source. Moreover, you and your prospects don't have to wait until April 15 (in Canada it is April 30) to get the benefit of any expected losses. You can adjust your withholding or estimated tax payments to see an immediate pay raise! IRS states in their publications that for every $2800 in new expected deductions, you can add one exemption for withholding. Thus if you expect to pay $11,000 more in interest on the purchase of a big home or $11,000 of losses from a home business, you may add four exemptions for withholding purposes. It is like having four new children but is a LOT less painful! There are, however, several keys to all this:
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