According to the Pew Research Center, 1 in 6 Americans have now made money online in some way. 6% of Americans are making all or almost all of their money online. That’s more than 4.7million people.
The worst part? Almost ALL of them are overpaying on their tax bill to the IRS.
According to polling data, most online business owners have no tax strategy at all, meaning they’re just winging it every year come tax season.
DONT be one of these people. Stop it.
Here are 5 strategies to implement before the year ends to save big from the tax man.
1. The Augusta Rule
1. **What is the Augusta Rule?**The Augusta Rule, known to the IRS as Section 280A, allows homeowners to rent out their home for up to 14 days per year **without needing to report the rental income on their individual tax return.
The Augusta rule IRS exemption was lobbied for by residents of Augusta, Georgia, in the 1970s. Each year, the Masters golf tournament is held at the Augusta National Golf Club, and residents of the city wanted to rent their home to attendees of the tournament without becoming full-fledged rental businesses. Their efforts paid off, and Section 280A was added to the tax code. Fortunately, today, the IRS Augusta Rule extends to all homeowners in the US, not just those in Augusta, Georgia.
You can use these 14 days of rental income for all sorts of fun things. one of the best is Renting out your home to your business for those 14 days for monthly board meetings.
You can look up standard rates for meeting halls in your area, and take that amount off as a rental expense from your business.
What does this do? it reduces your net income on your business which means—less taxes.
Now, your business structure, current tax situation and more will all matter when filing any of these, so keep that in mind. This is NOT cookie cutter infuriation as everyone’s business and tax situation is different.
- Hiring your Kids (/Pets?!)
Most people aren’t aware that hiring kids is a great way to shelter income from taxes.
As a dad, I know that every extra cent I make is going to my daughter Sophia anyway. Whether it’s for clothes, a new Macbook, or for education or travel.
But what if–you could pay for this–tax free? Here’s how it works.
Your son or daughter is of legal working age for family members in your area. You hire them, and pay them a reasonable wage to do some type of work in your business–for you online service based businesses with an online presence on social media, regular appearances in your videos and pictures on social media is good to show them as a marketing person in your company. If they have specific skills they’re cultivating and wand to apply them to your business– employ them in that.
You can pay your child up to the standard deduction each year and not have any direct income tax consequences.
I also said pets here: if you use pets in your marketing material on a regular basis you can write off pet expenses as well.
- Home office deduction
If you’re working out of your home, you should be writing off your office. The IRS has a simple home office worksheet where you take a percentage of the square footage of your home, and then use that to calculate how much of heat, gas, electric, mortgage, and other home expenses you can write off.
HINT: you can do this, even if you have an office outside of your house.
- Education Expenses
As online educators, one of our favorite things to do is get educated ourselves. Fortunately for us, you can write off many education expenses in relation to your business. Most online courses, seminars, and even meetings with mentors are a write-off for your business. All you need to do is keep track of the receipts.
- Electric Vehicles
You ever wonder how there are so many dang Teslas on the road? at a price of 70k+?! Well, what if the US government footed the bill on the first year of payments for you? Would that change your tune? That’s what the Plug in EV Tax Credit can do for you.
Any qualifying vehicle purchased receives up to a $7500 tax credit.
If you’re a real pro, you’ll lease the vehicle through your business, giving you the tax credit, the lease expense, AND the depreciation on the vehicle. The holy trifecta of tax efficiency.
Those are 5 of my favorite tax strategies for online biz owners, but there are literally thousands more.