Can starting a business decrease my taxes?
Friday, October 3rd, 2008Can starting a business decrease my taxes?
Starting a business can lower your tax liability, but keep in mind that there always has to be a profit motive and a business motive for starting a business. You should not generally start a business just to reduce income taxes. In fact, businesses that show losses for a consecutive number of years - generally three - could be subject to scrutiny, and taxing authorities could determine that in fact a business doesn’t exist, that a hobby exists, and deductions are not allowed for hobbies. So for example if you collect stamps and you try to start a business in it, and don’t earn any money for three years running, you could run the risk of having related business expenses disallowed because the taxing authorities could determine that it’s really a hobby. You promote business motive if you have business cards, if you’re actively meeting with people who can bring profit to you, if you’re advertising; those go a long way to proving that you do have a profit motive.
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