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The last decade may
have been a decade
of tremendous
corporate profits
and economic growth,
but for the vast
majority of North
Americans, the 90's
were a dismal,
uphill climb. And
many economists
believe that this
new millennium won't
be getting better
any time soon.
Why?
Changing business
and government
attitudes are the
reason. There has
seemingly been more
anti-business
legislation in the
last decade than in
any other this
century. Stronger
employment and labor
laws, the Age
Discrimination in
Employment Act, the
Comprehensive
Omnibus Budget
Reconciliation Act
(COBRA, which
includes mandating
health insurance for
workers for a period
of time after they
leave employment),
safety laws, much
tougher laws for
discharging workers,
more liabilities for
lawsuits, Family
Leave Act, Americans
with Disabilities
Act (which is
creating immense
numbers of
lawsuits), along
with higher minimum
wages and fringe
benefits.
Just
reading this list is
exhausting.
While these acts
have beneficial and
protective aspects,
they have also
encouraged
businesses to move
their facilities.
That "sucking sound"
popularized by Ross
Perot is not just
down to Mexico, but
elsewhere as well.
The result has been
a dramatic loss of
heavy industry in
the U.S.
The young and the
middle-aged alike
are realizing that
their dream of
"having a job with a
company forever" is
an illusion.
Companies have been
downsizing,
rightsizing, and
capsizing for some
time now, and they
continue to do
so-more now than
ever before. Even
the federal and
state governments
are getting into the
act with layoffs and
attrition of jobs.
In addition to all
this uncertainty and
mutual lack of
loyalty between
companies and
employees, even the
workers who do keep
their jobs have no
guarantee of
promotions due to
the shrinking number
of management
positions. These
circumstances
aggravate the
already tryingly
long commutes in
rush hour traffic
and increasingly
typical frustrated
boss-spelled
backwards, that
double S-O-B.
Finally, if all this
isn't bad enough,
under recent tax
laws employees are
shafted more than
ever with limits and
thresholds for their
employee deductions
and higher social
security tax limits.
This results in more
couples working than
ever before and, on
many occasions,
working more than
one job. It is now
almost impossible to
have only one job in
the family and make
ends meet! Today,
many households need
three incomes just
to survive.
Sadly, even having
more than one job
does not produce any
major positive
effect on most
people's bank
accounts. Why?
Because of tax laws.
This was well
illustrated in 1994
by Jane Bryant Quinn
in her Woman's Day
article on "How to
Live on One Salary."
Where
The Money Goes
Ms. Quinn's example
assumed that a man
was earning $40,000
per year. His wife
(we will call her
Lori) wasn't
working. They had
more month than
money. (Sound
familiar?) Lori
subsequently got an
administrative job
for $15,000 per
year. You would
think this would
improve the family's
financial situation,
but when Ms. Quinn
examined the
economics of getting
this extra income,
the results were
startling!
Lori had to pay
federal and state
taxes on her new
income. Since they
filed jointly, the
family's combined
income was what
established their
tax bracket. She
paid $4,500 in new
taxes, most of which
was non-deductible,
for federal and
state income tax.
Lori had social
security withheld
from her paycheck at
the rate of 7.65
percent, which
amounted to an
additional
nondeductible amount
of $1,148 being
extracted from her
salary. She also had
to commute to work
10 miles a day round
trip, which is
probably
conservative for
most people. This
resulted (in 1995)
in nondeductible
commuting costs of
$696.
Lori also had some
child care expenses,
which give a partial
tax credit. Ms.
Quinn figured that
the amount spent
over and beyond the
tax credit was
$4,250 per year.
Lori also ate out
each day with
colleagues, spending
an average of $5 per
day, five days a
week. This results
in a nondeductible
expense of $1,250
per year. ( I would
love to know where
she ate for only
$5!)
Now that Lori has a
job, she has to have
professional
clothing, this means
a hefty dry cleaning
bill. Ms. Quinn
assumed that Lori's
increased expenses
here amounted to an
extra $1,000 per
year, nondeductible,
of course.
Finally, with both
spouses working,
Lori wasn't in the
mood to cook dinner
every night. They
bought more
convenience foods
and ate out more
frequently. This
resulted in
increased food costs
of a nondeductible
$1,000 per year in
minimum.
Add it all up and
Lori's take home pay
was a paltry $1,156
a year, for which
she had to put up
with a daily
commute, an
unpleasant boss, and
corporate hassles.
No wonder more and
more people are
starting home-based
businesses. In fact,
there are currently
an estimated 30
million people
working from their
homes. This number
is expected to more
than triple, to 97
million, by the year
2000, and to keep on
growing. This has
become and will
continue to be one
of the greatest mass
movements in the
U.S.
Why a
Home-Based Business
Makes So Much
"Cents"
There are many
reasons why so many
people are favoring
home-based over
traditional
business.
There is no commute
(unless you have a
really big home), no
boss, little if any
chance of lawsuits,
much lower overhead,
no employees, (or
few), and far fewer
government
restrictions. In
fact, many of the
laws previously
cited don't apply to
small firms with few
or no employees. It
is for these
reasons, according
to Entrepreneur
magazine, that 95
percent of
home-based
businesses succeed
in their first year
and achieve an
average income of
$50,250 per year
with many earning
much more.
There are really two
sets of tax laws in
this country. One is
for employees, and
it allows deductions
for individual
retirement accounts,
401(k)s (if you have
one set up by your
company), interest
and property taxes
on your home (which
some in Congress
want to do away with
), and charity. Then
there are the laws
for home-based
business people who
conduct their
business either
full-time or
part-time. They can
deduct, with proper
documentation ,their
house, their spouse,
and even children
(by hiring them),
their business
vacations, their
cars, and their food
with colleagues.
They can also set up
a pension plan that
makes any government
plan seem paltry by
comparison.
For Lori-and for you
- the meaning of all
this is simple:
Lori earned $15,000
in salary as an
employee, but took
home only $1,156.
She could have
netted the entire
$15,000 had she
earned it in a
home-based business!
This is an increase
of almost 13 times
her take-home pay as
an employee.
Notice that Lori is
not spending
dramatically more
money than she is
currently spending.
She would eat out
anyway, go on trips
and drive her car
the same as before.
By having a
home-based business,
however, many of
their expenses
become deductible.
This concept is
known as
"redirecting
expenses." With a
legitimate
home-based business,
she can now deduct
some of the expenses
that she is
incurring anyway.
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