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If you’ve read my About page, you know one of the major challenges we’ve had as a family has been money. I’ll never regret the decision we made to focus on our family. But I’m not going to lie to you. Transitioning from no kids with a dual income, to two kids living off little more than a beginning teacher salary has been . . . well—a real bitch.

I wouldn’t recommend it. It’s not for everybody.

To make it work, we’ve had to do a lot more than simply cut back. Indeed, we’ve learned to become very creative – and very knowledgeable. From do-it-yourself projects to repairing and sewing our own clothes; from juggling credit cards to refinancing mortgages; from garage sales and Goodwills to coupons and rebates; from budget utility programs to the unique intricacies of harvesting and selling our kidneys on the black market–we’ve learned a lot along the way.

One of (if not the most) valuable things we’ve learned however, was how to take full advantage of the tax benefits available for home based business. I’m thrilled at the amount money we’ve already saved. But I can only imagine how much we will continue to save as we use this knowledge every year for the rest of our lives.

Sure, we’ll always have to pay taxes. There’s no escaping that. And for the record, we’re not trying to. Make no mistake about it. We pay taxes — just not as much as the average bear. And just like saving for retirement or college—a little today goes a long way tomorrow.

But I gotta tell ya. As far as taxes go—we’re saving a lot.

And when do we see this money? After we file for our returns? Not on your life. We need this money now. So we see it every payday.

You see. I don’t withhold much. In fact, I withhold very little. Sure that means a smaller refund in the spring. But Uncle Sam doesn’t pay interest.

Uncle Sam doesn’t pay interest.

We withhold as little as possible so we get to keep more of each paycheck.

We didn’t learn to do this to cheat the government or brag. We did it so we could pay our mortgage on time.  I viewed withholding taxes as giving the government a 0% interest loan. It simply didn’t make any sense.

We borrowed money all the time. We borrowed from banks; we borrowed from credit card companies; we borrowed from utilities (whenever we couldn’t pay something on time).  And whenever we do it, we expect to pay interest, or a penalty, or something. Yet I’m supposed to accept giving my hard earned cash to the government interest free?

Absurd.

I’d much rather owe taxes at the end of the year and pay it as late as possible. If anything, I want the interest free loan. Make sense?

I’d much rather owe taxes at the end of the year and pay it as late as possible. If anything, I want the interest free loan.

For most, however, what’s out of sight is out of mind. Many view withholding like a savings account, or worse, found money. You know—like when you take out that winter coat you haven’t worn in a year and find five dollars.

How we keep thousands of dollars from the IRS every year

The first thing we did is established, in our home, a couple of businesses in which we make a serious attempt to turn a profit. That might sound funny but as far as the IRS is concerned—it’s not. In order to legally qualify for the tax deductions I’m going to list shortly, a homeowner must clearly be running a business with the intent of making a profit.

The first thing you want to do is establish a business that you intend to be profitable. The next, is to never actually make any money.

So that’s the first thing.

The next is to never actually make a profit.

Careful. I didn’t say you don’t want cash flow. What I said was, at the end of the year, when you add up all your revenue and then subtract all your expenses, you want an answer as close to zero as possible.

In fact, if you want to be really good at not paying taxes, it’s important to learn how to actually lose money running a business while intending to turn a profit. And how, you might ask, is that even possible? It all starts with the greatest invention ever: The Home Office Deduction.

In fact, to save the most, you need to learn to lose money running a business with which you are intending to turn a profit.

Taking Full Advantage of The Home Office Deduction

So what exactly is the Home Office Deduction? Well, I’ll tell you what it’s not. It’s not one single deduction. It’s many. In reality, it’s actually a series of smaller deductions totaled up and reported on IRS Form 8829, “Expenses for Business Use of Your Home.”

This is where the fun begins because now you can start itemizing expenses such as utilities, household repairs or improvements, mortgage interest, and depreciation of certain kinds of equipment.

But that’s not all. Once you’ve established your home as your principal place of business, you can begin expensing the cost of traveling from home to any business destination. This can add up quickly. In 2007, for example, the government will allow you to claim 48.5 cents per mile.

Once you’ve established your home as your principal place of business . . .the government will pay you 48.5 cents per mile.

And it gets even better. Often times, with the proper attention to documentation, you can also deduct money you pay your own children to help you work the business, business gifts, certain meals and entertainment, and even expenses related to cell phones and computers.

But Aren’t you afraid you’ll get audited?

A lot of people will read this article, get serious heeby-jeebies, and immediately start sweating about IRS audits, fines and even (gulp) prison. I think that’s exactly what the IRS would want. How else can they convince people not to take deductions that they are legally entitled to?

A lot of people will read this article, get serious heeby-jeebies, and immediately start sweating about IRS audits, fines and even (gulp) prison.

Would I welcome an audit? Of course not. They sound like a real hassle. But would I FEAR one? No. Because every cent we’ve deducted is both completely legal, and has been meticulously documented.

I’m not afraid because we can, without a doubt, prove two things: 1) that an expense was in fact paid, and 2) what it was for. Everything we’ve deducted includes a receipt, invoice, canceled check, or credit card charge slip as well as a short description explaining its link to the business. We keep a log in our car to document mileage for business related trips. Emma has a time card she uses to track the time we pay her for as well as the duties she’s performed for us.

It takes a certain level of discipline, cooperation and organization but any inconvenience we’ve suffered through this learning process has paid for itself in cold hard cash. Just look at the list of things we routinely deduct:

  • repairs and maintenance,
  • utilities,
  • property taxes,
  • mortgage interest,
  • insurance,
  • mileage,
  • phones and communication,
  • internet services,
  • meals and entertainment,
  • gifts,
  • computer hardware and software,
  • office supplies,
  • educational expenses, l
  • labor expenses (we are able to deduct the money we pay Emma to help us with business related tasks such as organizing newsletters or cleaning the office),
  • some clothing expenses,
  • products we buy for inventory,
  • some products we use,
  • postage,
  • some education expenses,
  • some subscriptions,
  • and tax preparation.

That’s right, tax preparation. Did you think we figured this all out on our own? Do you think I have the time or energy to research the ever-changing landscape of tax codes? Not on your life. We pay experts to do this for us. I see it as an investment.

And as it turns out, one of the best investments we’ve ever made.