Two questions on reducing taxes

10 Replies

So today I stumble upon something new that you the reader of this post probably learned years ago. I burn some time on YouTube watching videos on paying less taxes.

One popular real estate youtuber grant Cardone says don’t pay taxes on anything while keeping it legit xyz but he doesn’t say how to do it.

He says you can lease for free and get the money back at the end of the year but he doesn’t tell you how to do it.

Then it looks like I need to start a business from home in order to get this going.

So my questions are

1. Can I reduce my %40 taxes from my corporate job ? I changed my allowances to 9 like grant cardone recommends but I will just be charged at the end of the year for those taxes while my paychecks will be bigger

2. What type of businesses can I start from home to start ripping the benefits of reducing my taxes. Getting my car write off, getting paid off $0.55 per mile I drive etc.

Is there any mentor or program that could walk me through this that works.

Originally posted by @Arty Fresh :

So today I stumble upon something new that you the reader of this post probably learned years ago. I burn some time on YouTube watching videos on paying less taxes.

One popular real estate youtuber grant Cardone says don’t pay taxes on anything while keeping it legit xyz but he doesn’t say how to do it.

He says you can lease for free and get the money back at the end of the year but he doesn’t tell you how to do it.

Then it looks like I need to start a business from home in order to get this going.

So my questions are

1. Can I reduce my %40 taxes from my corporate job ? I changed my allowances to 9 like grant cardone recommends but I will just be charged at the end of the year for those taxes while my paychecks will be bigger

2. What type of businesses can I start from home to start ripping the benefits of reducing my taxes. Getting my car write off, getting paid off $0.55 per mile I drive etc.

Is there any mentor or program that could walk me through this that works.


Most of the time these are all the hypes. I do not think anyone has time to start a side business  just to reduce taxes. Taxes should not be first priority while stating a business and it’s also should not be the reason to start a new business. 

Yes, if you/ spouse have free capacity/willingness to work more, there can be some planning done to reduce the taxes of the business you will start. Not to generate a loss and offset your W-2. 

How much do you think .55 per miles deduction will save you on taxes? To a high earner, it’s almost immaterial. It’s a deduction, not a tax credit.Even a thousand dollar deduction would give you 200k in tax savings on average. Same thing with other deductions.

If you really want to start a business for business sake, that different story and we can draft a good tax saving plan. 



@Arty Fresh

It's not a good idea to try to implement tax advice from Grant Cardone without understanding if it's going to work for you and why he is doing it.  What works for Grant Cardone might not work for you.  Grant Cardone is not a tax professional.

As @Ashish Acharya laid out, the Service has a few different ways they could attack a "business" you make solely for tax reduction.  Most likely a court would find the whole thing a sham under the "sham transaction doctrine" based on what you've laid out in your OP.  There is no business purpose nor profit motive -- your only goal is tax avoidance.  The hobby loss rules under IRC Sec 183 could potentially disallow all deductions (you would still have to report any gross income) if you don't run the activity like a business and/or take any measures a reasonable business owner would take to try to improve profitability.

If you fill out a W-4 and claim more allowances than you should based on the worksheets, don't be surprised if you get hit with hundreds or even thousands of dollars of under-withholding penalties next spring.

“Changing my allowances to 9 like some internet guy says...” that’s just ridiculous.  Other than the potential false claiming penalties, I always took the opposite approach....claimed 0, never missed the few dollars/week, got a refund in one chunk later, or payed less additional tax at year end.

@Arty Fresh by VERY careful about underpaying your federal taxes.  At the end of the year, when you file if you owe too much then there is a significant penalty.  Also then the next year you will have to pay quarterly estimated taxes.  

You can deduct mileage you use for business, not just driving around.  I can deduct when looking for new houses, driving to my rentals t fix them, etc.

Deducting working space in your home is a double edged sword.  You do not get the capitol gains dismissed for the portion of the house that was used as a business.  I personally do not do that deduction as I would rather have the capitol gains dismissed when I sell a primary residence.  And I legitimately worked from home as a federal employee for about 5 years prior to my retirement, with federal inspections of my work space, at home office, bathroom, etc.  

Figure out what business you want, then talk with a CPA and they will tell you about the tax benefits you may be able to use.

@Lynnette E.

"You do not get the capitol gains dismissed for the portion of the house that was used as a business."

As long as the home office is within the dwelling unit you don't have to prorate gain between excludable and non-excludable.  Only depreciation is taxable as 1250 gain, not to exceed the total gain.

Rev Proc 2013-13 provided a $5/sq ft home office safe harbor for tax years beginning on or after 01-01-2013.  There is no depreciation recapture under the safe harbor, although generally I find the safe harbor deduction is materially smaller than the actual expense method.  Which one you choose should be a conversation between you and your tax pro as there are pros, cons and limitations for both.

@Arty Fresh

My colleagues were proper and professional. I will be neither. GC is the worst of the clowns when it comes to taxes. I'm pretty sure I watched that garbage interview that you're referring to. The interviewer is asking him - how much do you need to make in your side business? And Cardone screams into the camera - you don't need to make anything! Yeah, right! I could use the right words to describe his statements, but such words would violate this site's policies. :)  

No, you do not reduce your taxes by creating a fake side business. You just don't. Stop listening to GC.

Originally posted by @Arty Fresh :

2. What type of businesses can I start from home to start ripping the benefits of reducing my taxes. Getting my car write off, getting paid off $0.55 per mile I drive etc.

Ironically, your misspelling of "reaping" was more accurate. Ripping is a good word when it comes to this wildly popular promoter.

Short intro to business taxes:

1. You can NOT deduct anything from a fake pretend business. Only a real business - the one where you're actually trying to make money and have a realistic prospect of success.

2. Once you start a legitimate business, you do not magically turn your personal expenses (food, rent, car, travel etc.) into business expenses. Only those expenses that are truly related to your business are deductible. For example, driving to business appointments, travel to business conferences, business meals with business partners etc. As opposed to - your full car payments, your family vacations and your groceries. 

3. If you have more business deductions than business income - you have losses. Yes, your taxes go down when you have business losses. But remember that you're actually losing money! And losing way more than "saving" on taxes. Talk about shooting yourself in both feet and stomach. I know people who spent $10,000-25,000 on GC events and training - and zero income to show for it. 

4. If you have more income than deductions - congratulations, you have a successful profitable business! The way it's supposed to be. But your taxes will go UP, not down. More income = more taxes.

5. Home office - the one deduction GC loves to lie about - is only available when you have profitable business. Now when you're losing money. Business that loses money cannot deduct home office, period. And when your business is profitable, home office deduction is not automatic, you have to qualify for it.

6. The only business where you can make money AND reduce taxes at the same time is owning rental real estate. This is an excellent business (and not because of taxes), and BiggerPockets is an excellent place to learn about it. Check the library of books that are sold by BP.

@Arty Fresh

Years ago I found making money in my ira/401k worked well for me to alleviate the tax burden. When Roth’s came into existence it was tax free income for life and beyond. It just made a lot of sense to me and I started helping others which grew into a business.  Lots of information on the subject. Haven’t found the downside in decades. 

Originally posted by @Eamonn McElroy :

@Lynnette E.

"You do not get the capitol gains dismissed for the portion of the house that was used as a business."

As long as the home office is within the dwelling unit you don't have to prorate gain between excludable and non-excludable.  Only depreciation is taxable as 1250 gain, not to exceed the total gain.

Rev Proc 2013-13 provided a $5/sq ft home office safe harbor for tax years beginning on or after 01-01-2013.  There is no depreciation recapture under the safe harbor, although generally I find the safe harbor deduction is materially smaller than the actual expense method.  Which one you choose should be a conversation between you and your tax pro as there are pros, cons and limitations for both.

You said it much better and correctly.  

This is what I was trying t say cut from NOLO:

Home Offices: A Tax Drawback

The exclusion does not apply to depreciation allowable on residences after May 6, 1997. If you are in a high tax bracket and plan to live in your home for a long time, taking depreciation deductions for a home office is quite valuable right now. But if not, you might want to reconsider using a portion of your home as an office, because all depreciation deductions you take will be taxed at 25% when you sell the house.

Example: A married couple sells a home with an adjusted basis (purchase price plus capital improvements) of $100,000 for $600,000. Over the years, they had taken $50,000 in depreciation deductions for a home office.

Sales Price: $600,000
Adjusted Basis - $100,000
Taxable gain = $500,000

Of that gain, $450,000 is tax-free; the $50,000 taken as depreciation deductions is subject to 25% capital gains tax.

For me it just seemed that it was not worth the limited tax benefit for exclusive use of the rooms.   Seemed better to just let the kids occasionally use the rooms.  And that is personal choice.

@Lynnette E.

It's quantitative as well as qualitative.  I assume and hope you and your tax pro are at least taking the safe harbor home office deduction if the goal is to avoid 1250 gain and you are otherwise eligible for a home office deduction.  Again, there is no 1250 gain under the safe harbor method.

If a taxpayer is in the highest income tax bracket and subject to SE taxes (remember a home office deduction reduces both income and SE taxes assuming schedule C), it makes a heck of a lot of sense to take that depreciation deduction now as the current effective tax rate of the deduction would be at least 40%.  Recap in a future tax year is 25% max.  The rate differential and time value of money make it (almost a) no-brainer in my opinion.  But -- like I said -- there are qualitative aspects also.  Sometimes qualitative aspects can over-ride the math...

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