5 Common Tax Myths That Are Costing You A Bundle

This article is based on the following 2 assumptions:

1) You are a small business owner or self-employed person
(including home-based businesses and part-time
entrepreneurial activities).

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 go."

Now, if paying taxes makes you so upset, what have you done
about it lately?

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 taxes.

Here they are. Get rid of them or you'll be stuck paying
too much tax forever!

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.

And if 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."

Again, 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 bank accounts.

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."

There are 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!

Why 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 only.

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 knows.

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 taxes."

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 own returns?

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 back!

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 order.

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.

So my challenge to you is this: What are you going to do
this year to reduce your taxable income?

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.