Common Tax Myths That Are Costing You A Bundle
by Wayne M.
This article is based on the following 2
1) You are a small business owner or self-employed person
(including home-based businesses and part-time entrepreneurial
2) You don't like to pay taxes. In fact, whenever you think
about paying taxes, you get so mad you end up "all lathered up and nowhere to
Now, if paying taxes makes you so upset, what have you done about
Why was your tax bill so high last year?
You paid too
much tax last year (and the year before that, and the year before that . . .)
because you have probably been an innocent victim of many popular myths about
Here they are. Get rid of them or you'll be stuck paying too much
Tax Myth #1: "I don't make enough money to worry about
reducing my taxes."
Nothing could be further from the truth. People at
all levels of income can pay less tax.
Tax reduction strategies are not
just for the rich and famous. No matter how much money you make, you can pay
less tax than you currently pay.
In fact, even if your business (or
part-time entrepreneurial venture) has a loss, you can use that loss to offset
other sources of income, such as wages from a "regular" job, your spouse's
wages, investment income, rental income, other business income.
your business loss is so great that it more than offsets all your other income,
you can take advantage of a special rule that lets you: a) Carry back that
excess loss to the 2 prior years, thereby entitling you to a refund of taxes
you already paid for either (or both) of those 2 prior years; and/or b) Carry
forward that excess loss to the next 20 future years, so that any income you
earn in the future will be reduced by that excess loss.
Tax Myth #2:
"Tax reduction strategies are too complicated for me to use."
total and complete hogwash. There are plenty of ways for you, the average
American, to lower your taxes.
Tax reduction is not just for the
wealthy who pay high- priced attorneys to finagle their way out of paying taxes
with sophisticated tax-avoidance schemes, like off-shore trusts and foreign
The average Small Business Owner has plenty of tax
reduction strategies at his/her disposal. You just have to know what they are
and how to use them.
Tax Myth #3: "I had my return prepared by an
Accountant, so I know I paid the right amount of taxes."
thousands of excellent, hard-working accountants doing a great job. And if you
use a tax professional, maybe he/she has done everything possible to reduce
your taxes to the legal minimum.
Based on my own experience, however,
I'm convinced that many taxpayers who use professional tax preparers are
overpaying their taxes, sometimes by thousands of dollars each year!
is that? Well, there are many reasons. The most obvious one is this: Many
professional tax preparers are just that: tax preparers and tax preparers
A good tax accountant may know how to prepare a tax return in
his/her sleep. He knows the forms backwards and forwards. He knows what numbers
go on which form perfectly.
But that's it. That's all he/she
A good tax preparer is not necessarily knowledgeable in tax
reduction strategies. There's a big difference between a good tax preparer and
a savvy tax reduction specialist.
When you look for a good accountant,
make sure you find one who doesn't just "do the returns", send out a bill and
say "Next, please."
Tax Myth #4: "My tax situation is OK because my
BLANK (fill in the blank with a family member or other "good friend") takes
care of my taxes."
There are various versions of this myth. Do any of
these sound familiar?
"My brother-in-law takes care of my taxes."
"My uncle takes care of my taxes."
"My college buddy takes care of my
And of course, the same problem exists with Myth #4 as Myth #3.
Even when someone you know and trust does your returns, how do you know that
this person is a good tax reduction specialist?
And often, many of these
family members or "buddies" are not even professional tax preparers. This
person just happens to be "The Family Accountant. Just like every family has
one person who knows a lot about cars (or mutual funds, or carpet cleaning, or
whatever), many families have someone who "knows enough to be dangerous" with
regard to taxes.
And even if your "Family Accountant" is a professional
tax preparer, he's probably not charging you for the return. He's doing you a
favor. He prepares your return; you change his oil.
My first reaction to
this kind of situation (when someone is getting his/her return prepared for
free) is this: You get what you pay for! When a family member does your return
"for free", how much attention can he give to your need for tax reduction
strategies? Probably very little.
Tax Myth #5: "My tax situation is OK
because I prepare my own returns."
If this statement applies to you,
then perhaps you are a "do-it-yourself-er". Money is tight and you are used to
doing things yourself anyway, so why not save a few bucks each year and do your
So you've spend countless hours over the years pouring over
the forms and instructions, trying to figure out how to do the returns. And
you've done OK. No letters from the IRS, no audits. Hey, pat yourself on the
And now that tax preparation software is so readily available and
affordable, doing your own return is a breeze! Just key in a few numbers here
and there, push the print button, and presto, you've got your return done in
record time! And now you can even e-file your return with your own computer.
Have you ever heard of the book, "The Millionaire Next Door" (by Thomas
J. Stanley and William D. Danko)?
This book describes the common
characteristics of millionaires in our country. My favorite millionaire
characteristic is this:
Millionaires become millionaires by minimizing
their taxes and getting their tax & other financial affairs in
Now comes the "Million Dollar Question": How do you think
millionaires get their tax affairs in order? By doing their own tax returns? Of
course not! Millionaires NEVER do their own tax returns! They have more
productive things to do with their time.
Instead, what millionaires do
is spend time and money each year on tax planning and tax reduction strategies,
not figuring out what number goes on which line of Form XYZ.
challenge to you is this: What are you going to do this year to reduce your
Are you a believer in any of these 5 myths? Now's the
time to get rid of them, once and for all.
Your financial well-being
depends on it.
Wayne M. Davies is author of the new eBook, "The
Tax Reduction Toolkit: 29 Little-Known Legal Loopholes That Will Reduce Your
Taxes By Thousands (For Small Business Owners and Self-Employed People Only!)
Don't file another tax return until you visit:
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