When I was a senior in college I had a friend who I considered to be pretty brilliant. He was a few years older than most of my classmates and while he had limited business experience, it was definitely more than I had as a 21 year old at the time (which was pretty much nothing other than that Kool-Aid stand I had as a kid). One day as we were preparing for an exam, he shared something with me that I have never forgotten. I don’t remember the exact words, but I’ll paraphrase:
“Everyone should have a business. Especially if you’re working a job with a half decent salary. We can be enterprising American citizens or we can simply be tax payers. Uncle Sam rewards entrepreneurs even if you try and don’t make a penny. That money you spend trying to build something successful is money you would’ve had to pay in taxes anyway.”
When I left college, married my husband, and started a full time job as a software engineer, I immediately decided that I wanted to have a business because of what my friend told me. Frankly, I didn’t really care what kind of business at the time. I just wanted to do something! My husband and I started with something simple — selling products on Yahoo! Auctions. We bought the hot toys of the time for a discount and then resold them for as little as a $3 profit to as much as a $50 profit per item. We didn’t make much money doing this — only $300-400 each month we did it, but the point was that because we had this business we were able to write off as business expenses things that we previously used personal funds for such as our phone bills, internet access, office supplies, etc.
Why am I going down this road? I simply want to point out just one of many reasons why aspiring real estate investors who are working 9-to-5 and are sitting on the fence should just get going.
Let’s say that you’re an aspiring real estate wholesaler. Think of all the business expenses you’ll potentially have — marketing costs, cell phone bill, internet access, mileage, gas, office supplies (paper, envelopes, printer ink, stamps)…the list goes on. With a little bit of tax planning with a professional you can figure out how much you should increase your withholding allowance on your Form W-4 with your employer to decrease your tax withholding from your paychecks and make more cash available to you on a monthly basis (which can then be invested in building your business). For those who are concerned about having the cash available to do important things for your business, I just gave you a great possible solution.
To be crystal clear, my purpose here is not to provide tax advice — I’m not a tax professional. What I’m simply trying to do is give some food for thought and plant the same seed that was given to me years ago.
Think about it.
Photo credit: Alan Cleaver