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7 Ways To Avoid A Huge Tax Burden As An Internet Marketer (Pt 2)

by on March 20, 2012

If you missed the first part of this article check it out first. Otherwise it’s like walking in to the middle of a great movie.
#4 Consider An HSA Plan

Another way to cut down you tax burden is to look into setting up a Health Savings Account, also known as an HSA Plan.  An HSA is a savings account that works in conjunction with a high deductible health insurance plan.

For example, if you have a $5000 high deductible health insurance plan you will likely also qualify for an HSA account that will allow you to tax deduct anything that is considered health related.

For example, this could cover anything from a doctor’s visit, buying prescription medication, to a box of band aids.  That’s right, any money that comes out of that account can be tax deducted from your total income at the end of the year to lower your tax burden.  On top of that when you hit you plan deductible the insurance will usually cover 100% of the expenses.

However there is a downside to these plans you also have to consider as well.  With almost all HSA plans they will typically not include any drug prescription plan or doctors copay plan, which means you, will have to cover those costs out of pocket until your deductible has been met.

In the end this kind of plan isn’t for everyone especially if you are a part time internet marketer and have a health insurance plan through your current place of work.  However, I thought I would mention this option especially since I plan to go more full time as an internet marketer and having a plan like this could prove to be very beneficial as a tax strategy.

#5 Attend Industry Conferences

The next thing you can do to cut down your tax burden as an internet marketer is to attend industry conferences, and the great thing about this is that there are a ton of them to choose from, such as Affiliate Summit, Affcon, Pubcon, to the Blog World Expo. I could go on and on with this list but you get the picture.

Now you might be wondering why going to one these conferences would be beneficial to you.  So first off, I’m going to cover a few reasons why going is so important.

  • One, you get to meet top earners in the industry and learn the new tips and tricks.
  • Two, it allow you to meet new merchants that you could possible work with to help you improve sales and conversion rates.
  • Three, events like these allow to also take a few extra days of R&R.  In fact, I usually like to fly in a few days early before the conference just to do a little site seeing.
  • Finally, it gets you motivated and excited.  This I find to be the most valuable reason for going to a conference like this because being an internet marketer can be kind of a lonely business from time to time and these events make a great way to talk to likeminded people.

Now that we know there is a huge benefit to going to conferences let’s consider the tax deductions a trip like this could give you.  So for example, one of the conferences I plan to attend in the near future is the Affiliate Summit West In Las Vegas. So first off we can deduct several things, the conference ticket which runs around $879, the airline ticket which runs around $364, the hotel which runs around $450, and finally you can also deduct the food you eat.  In the end I usually spend around $2000 to attend an industry conference like this and I can deduct every penny of it from my taxes.

#6 Deduct A Portion Of Your Home

Moving on the sixth way you can go about lowering your tax burden is by actually deducting a portion of your home, known as the home office deduction.  In fact I recently learned about this tax deduction through me accountant.

What this deduction allows you to do is actually deduct a portion of your homes square footage off of your taxes, however in order to qualify for this you must meet two qualifications.

  • Regular and Exclusive Use.  First off, in order to deduct a certain part of your home off of your taxes it must only be used for your business and nothing else.  The best way to do this is to have a spare room set up specifically as your home office and that’s it.
  • Primary Place of Business.  Finally, the office you have in your home must be your primary office, so if you have an office somewhere else you will typically not be allowed to take part in this deduction.

Now to determine how much of your home is deductible simply measure the total square footage of your office and subtract it from the total square footage of your home.  For example, if you homes total square footage is 2000 sq. ft. and your home office measures 144 sq. ft. you would only have to pay taxes on 1856 sq. ft. and not the full 2000 sq. ft. Not a bad deal when you think about it.

#7 Deduct Your Basic Business Needs

Finally, the last thing you need to consider is you basic office essentials.  This can range from a bunch of different things you need to make your office work from a day to day basis so here are a few things to consider.

  • Internet.  As an internet marketer you will need an internet connection and depending on the amount of time you use it for business purposes you may be able to get a majority of it deducted from your taxes.
  • Cell Phone.  No business is complete without a phone and if your cell phone is your primary method of contact other than email you may be able to deduct this as well.  In fact I’ve usually been able to deduct somewhere between 35% to 50% of my cell phone bill.
  • Office Supplies.  Finally, you can deduct office supplies such as paper, printer ink, and even a new laptop, or a new webcam.  Just make sure there is a necessary use for it.

Final Thoughts…

There you have it, the 7 ways to avoid a huge tax burden as an Internet marketer.  When it comes down to it if you really consider all the options I’ve presented in this article and you should have no problem increasing your tax deductions and decreasing over the coming year.  Also I know there may be other tax deduction options available so feel free to share them in the comments below.

This article was written by Chris Holdheide a personal finance blogger who writes for Stumble Forward.com, a blog about helping people avoid financial mistakes, improve their finances, and build wealth.

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7 Ways To Avoid A Huge Tax Burden As An Internet Marketer (Pt 1)

by on March 19, 2012

Have you done your taxes yet?  For most people this can be exciting thing to get a large sum of money back from the government for simply overpaying on your taxes, but for a business owner such as myself it can be the complete opposite.

In fact in my case I am facing a $5000 tax burden at the writing of this article.  I owe this to the fact that I own 2 businesses.  The first business is a manufacturing business which has done very well over the last year and my Internet marketing business which has also done great as well. In the beginning I started an Internet marketing business because it presented some great advantages to me such as bringing in a small extra income and allowing me to do some extra things on the side that I would have normally never been able to do.  On top of that it also had one other big advantage in that it is very low overhead business as well. Meaning I don’t have to worry about a lot of extra cost to run the business unlike my manufacturing business which has all kinds of overhead issues associated with it.  The downside though to a low overhead business which makes a lot of money, such as Internet marketing, is that you also face the issue of a huge tax burden.  In fact last year alone I earned over $12,000 as an Internet marketer and only had around $1645 on total deductions which lead to a taxable income of $10,800.  On top of that when you factor in the income I earned from my manufacturing business it caused be to bump up in tax brackets and pay even more in the way of taxes.

Ouch!  

This lead me to think about different ways to cut down my tax burden in the future as an Internet marketer and in this article I’m going share what I’ve learned with you.

Before We Start A Word Of Caution

The goal in this article is to achieve two things.  The first is to lower your tax burden as an Internet marketer and the second is to improve your business along the way.  In order to make this happen you will need to spend the money your business earns in a way that will achieve these two goals simultaneously. To do this there is a right way and a wrong way.  The wrong way would be to buy a new truck.  By doing this you might be able to deduct it from your taxes but it doesn’t improve your business what so ever, especially as an Internet marketer. On the other hand if you were to buy a new laptop this would likely achieve both goals because it could be a tax deduction for you while also improving your business as an Internet marketer.  

Now with that said here are 7 ways to go about achieving this.

#1 Set Up An Individual 401(k)

The first option to consider is setting up an individual 401(k).  This is a 401(k) that is very similar to a traditional 401(k) but rather is designed for those that are self-employed or work for themselves and have no employees. The great thing about this type of program is that as of 2012 you can contribute up to $17,000 a year which is all entirely tax deductible, allowing you to manually lower your tax burden.  For example, if you need to lower your tax burden you can simply contribute more money towards you individual 401(k) account.

However an individual 401(k) can also be used to improve your Internet marketing business as well. The reason for this is because it allows you to take a loan up to 50% of the value of the account or up to $50,000 which you can use to invest back into your business. For example, if you had $50,000 in your individual 401(k) and needed to make some costly site improvements you would be able to borrow up to $25,000 of your account value to make these improvements. On top of that any policy loan you do take is also nontaxable, which means you can’t be taxed for the money you take out as long as it is a loan and not a withdrawal.  

I’ve been researching this idea a lot lately and found it to be a good investment opportunity for those who want to cut their tax burden and save for retirement. On top of that I’ve found you may want to talk to your investment professional and your accountant to see how an individual 401(k) could be best set up to give you the biggest benefit.  

#2 Get A Mentor

The next thing you can do to lower your taxes is to hire a mentor.  This is something I’ve been doing for years and have found to be very valuable.  In fact I probably wouldn’t be where I am today without one.  On top of that the little money you spend here can also lower your tax burden as well.  In fact, the mentor I have only runs around $47 a month, but you don’t want to pick just anyone to mentor you.  
When it comes down to it getting someone to mentor you as an Internet marketer can be found at almost a dime a dozen but finding one that really knows what they are talking about can be a task in its own.  

In fact when I first got started in this business one of my first mentors had a lot of flaws and in the end was more of a 1 trick pony than a mentor.  So here are a few things to look for.

  • First off, you want someone that is knowledgeable in many different areas.  The mentor I have knows everything from mailing list, podcasting, online video, to outsourcing. Someone like this will be able to continually teach you knew things and help improve your business.
  • Secondly, the mentor you choose should have a lot of experience.  The mentor I have has been doing Internet market since 1999 and still does it to this day.
  • Finally, they should be easy to contact.  The previous mentor program I was in didn’t answer emails and typically the only way you could get a hold of someone was through their forum.  However, the program I’m working with now responds to my emails, forum post and on top of that they even gave me their phone number in case I need to get a hold of them in an emergency or even just to chat.

In the end I can’t recommend having a mentor enough as an Internet marketer.  By investing your money in a good mentor you not only lower your tax burden but you will also gain a ton of powerful insight on improving your online business as well.

#3 Consider Outsourcing

Outsourcing is another way to lower your taxes and improve your business as well.  With outsourcing it gives you some great benefits as an Internet marketer.  First, it allows you to hire professionals at a fraction of the cost to do things you may not have any idea of how to do.

For example, I’m in the process of setting up a forum for my website.  Personally, I have no idea how to do this from a programming stand point but by outsourcing this project it allows me to hire a professional coder to set this all up for me.

On top of that the second benefit to this is that outsourcing allows you to collapse time frames and get a lot more done with my business than I could ever do on my own.  To learn more about outsourcing check out Elance to get started.

(We continue tomorrow with part 2)

This article was written by Chris Holdheide a personal finance blogger who writes for  Stumble Forward.com, a blog about helping people avoid financial mistakes, improve their finances, and build wealth.

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A Winning Season Roundup

by on March 18, 2012

 

Let’s start this week with a recurring question -Does It Pay to Pay Off My Mortgage Early? Scott on Money addresses this question, offering discussion on what you should consider in making this decision.

The Time Management Ninja offered up a great list of 50 Things You’re Putting Off That You’ll Regret Later. Some of the list may seem obvious, but it’s a great list, and the theme for me was that these things just pile up, and by adopting a “just do it” approach you’ll have a heavy burden lifted off your shoulders.

This week Jeff Rose spoke to a group of college seniors at his alma mater, and was a bit taken aback when of the 50 or so in the room none raised his hand when asked if he knew what a Roth IRA was. To me, this raises new and troubling questions. Jeff’s response? Let’s Start a Movement (Roth IRA Style) And what a movement it will be. If I can quote Jeff – “On March 27, 2012, we’re going to have over 50 bloggers talk about why the Roth IRA is important, why they love it, and why every young investor needs to know more about it. ” 50? The movement is over 123 as I write this. The Roth can be a great tool to manage your lifetime tax bill, stay tuned and be part of the movement.

As the Roth conversation continues, Neal Frankle explains Roth IRA Recharacterization – What Your CPA Doesn’t Know. If Roth isn’t universally known, then the ability to convert from the traditional IRA to a Roth is even more obscure, and the concept of being able to reverse this through a recharacterization even less so. While we might forgive these CPAs, but we can also educate ourselves and potentially save a nice bit of money.

At Fabulously Broke, The Financial Blogger guest posted Early Retirement Extreme Idea or Reality? TFB has really worked out the numbers and is planning on retiring at 55. A nice goal. I wonder how many had a similar goal but the decade that just past changed their plans a bit. That would make an interesting research project.

I don’t usually include the major online papers in these roundups, but today, I’ll make an exception. Former Labor Secretary Robert Reich wrote Saving the Street From Itself, a reaction to the news that Greg Smith left Goldman Sachs and wrote a letter to the Times explaining his departure. After 12 years of raking in the big bucks he was sickened by how GS treated its customers. Without going into further detail, these two pieces are good reading and the Reich article has a comment of mine in the “NYT picks” tab, just one of a dozen chosen of the near 100 comments.

I guest posted at Best Rates In this week about how I am Taking Advantage of a Cash-Back Deal. There are some deals that are bit fringe, but I still had the urge to write about it, and was due to guest post elsewhere. A bit crazy, but the bucks add up fast on this one.

And to wrap it up, at My Money Blog – The Ethics of Credit Card Rewards and Bonuses. There are those who are concerned that signing up for a store card to get 10% off that day, but soon after, canceling, are being unethical. I can’t tell someone else how to feel, but I draw the line elsewhere. Doing so will hurt your credit score, but not your relationship with The Big Guy(tm).

Today’s roundup is named for the fact that J2’s basketball team made it to the finals, winning today’s game with the score above, and final game later today. Great to watch the kid’s get this far.

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How Goldman Sees its Customers

by on March 17, 2012

I suppose they could think less of the customers they’ve fleeced all these years. At least the Muppets are cute.

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The Domino Effect

by on March 15, 2012

I consider myself a capitalist. As Larry Kudlow states on his CNBC show,”We believe that free market capitalism is the best path to prosperity!” And yet, there are times that I see certain situations that make me wonder if the system isn’t broken. Which leads me to ask the question, if something is legal, does that automatically make it right?

Let’s look at one deal that deserves a bit of discussion. The takeover of Domino’s pizza chain by Bain Capital. Here is the timeline for this series of events:

  • 1998 – Bain Capital buys Domino’s for $1.1 billion. $725 million is borrowed against the company, with Bain investing $385 million of their own cash.
  • 2003 – Bain refinances the debt, pulling out an additional $188 million to pay out to its investors. Domino’s debt is now nearly $1 billion.
  • 2004 – Domino’s is taken public by Bain. Bain retains 79% of the company,  and receives $108 million for the 21% sold to the public
  • 2010 – Bain sells out and over a 12 year period makes over 500% on their investment. Domino’s is saddled with a debt load with interest equal to half the company’s income.

I bring this up as an example of what seems to be a typical leveraged buy out. There’s always more to the story, but the common theme among the leveraged buyout I’ve studied are twofold, a lot of money is made in comparison to the amount invested, and the newly public company is left with a debt load that puts it at risk for bankruptcy for years to come.

In the end, the Domino’s franchises have increased and more people employed over the period, so on a positive note it wasn’t case of firing people and reorganizing. Nonetheless, I’m hard pressed to understand how these deals are shining examples of capitalism.

 

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