Have you done your taxes yet? Â For most people this can be exciting thing to get a large sum of money back from the government for simply overpaying on your taxes, but for a business owner such as myself it can be the complete opposite.
In fact in my case I am facing a $5000 tax burden at the writing of this article.  I owe this to the fact that I own 2 businesses.  The first business is a manufacturing business which has done very well over the last year and my Internet marketing business which has also done great as well. In the beginning I started an Internet marketing business because it presented some great advantages to me such as bringing in a small extra income and allowing me to do some extra things on the side that I would have normally never been able to do.  On top of that it also had one other big advantage in that it is very low overhead business as well. Meaning I don’t have to worry about a lot of extra cost to run the business unlike my manufacturing business which has all kinds of overhead issues associated with it.  The downside though to a low overhead business which makes a lot of money, such as Internet marketing, is that you also face the issue of a huge tax burden. In fact last year alone I earned over $12,000 as an Internet marketer and only had around $1645 on total deductions which lead to a taxable income of $10,800.  On top of that when you factor in the income I earned from my manufacturing business it caused be to bump up in tax brackets and pay even more in the way of taxes.
Ouch! Â
This lead me to think about different ways to cut down my tax burden in the future as an Internet marketer and in this article I’m going share what I’ve learned with you.
Before We Start A Word Of Caution
The goal in this article is to achieve two things.  The first is to lower your tax burden as an Internet marketer and the second is to improve your business along the way.  In order to make this happen you will need to spend the money your business earns in a way that will achieve these two goals simultaneously. To do this there is a right way and a wrong way.  The wrong way would be to buy a new truck.  By doing this you might be able to deduct it from your taxes but it doesn’t improve your business what so ever, especially as an Internet marketer. On the other hand if you were to buy a new laptop this would likely achieve both goals because it could be a tax deduction for you while also improving your business as an Internet marketer. Â
Now with that said here are 7 ways to go about achieving this.
#1 Set Up An Individual 401(k)
The first option to consider is setting up an individual 401(k). Â This is a 401(k) that is very similar to a traditional 401(k) but rather is designed for those that are self-employed or work for themselves and have no employees. The great thing about this type of program is that as of 2012 you can contribute up to $17,000 a year which is all entirely tax deductible, allowing you to manually lower your tax burden. Â For example, if you need to lower your tax burden you can simply contribute more money towards you individual 401(k) account.
However an individual 401(k) can also be used to improve your Internet marketing business as well. The reason for this is because it allows you to take a loan up to 50% of the value of the account or up to $50,000 which you can use to invest back into your business. For example, if you had $50,000 in your individual 401(k) and needed to make some costly site improvements you would be able to borrow up to $25,000 of your account value to make these improvements. On top of that any policy loan you do take is also nontaxable, which means you can’t be taxed for the money you take out as long as it is a loan and not a withdrawal. Â
I’ve been researching this idea a lot lately and found it to be a good investment opportunity for those who want to cut their tax burden and save for retirement. On top of that I’ve found you may want to talk to your investment professional and your accountant to see how an individual 401(k) could be best set up to give you the biggest benefit. Â
#2 Get A Mentor
The next thing you can do to lower your taxes is to hire a mentor.  This is something I’ve been doing for years and have found to be very valuable.  In fact I probably wouldn’t be where I am today without one. On top of that the little money you spend here can also lower your tax burden as well.  In fact, the mentor I have only runs around $47 a month, but you don’t want to pick just anyone to mentor you. Â
When it comes down to it getting someone to mentor you as an Internet marketer can be found at almost a dime a dozen but finding one that really knows what they are talking about can be a task in its own. Â
In fact when I first got started in this business one of my first mentors had a lot of flaws and in the end was more of a 1 trick pony than a mentor. Â So here are a few things to look for.
- First off, you want someone that is knowledgeable in many different areas. Â The mentor I have knows everything from mailing list, podcasting, online video, to outsourcing. Someone like this will be able to continually teach you knew things and help improve your business.
- Secondly, the mentor you choose should have a lot of experience. Â The mentor I have has been doing Internet market since 1999 and still does it to this day.
- Finally, they should be easy to contact.  The previous mentor program I was in didn’t answer emails and typically the only way you could get a hold of someone was through their forum.  However, the program I’m working with now responds to my emails, forum post and on top of that they even gave me their phone number in case I need to get a hold of them in an emergency or even just to chat.
In the end I can’t recommend having a mentor enough as an Internet marketer.  By investing your money in a good mentor you not only lower your tax burden but you will also gain a ton of powerful insight on improving your online business as well.
#3 Consider Outsourcing
Outsourcing is another way to lower your taxes and improve your business as well. Â With outsourcing it gives you some great benefits as an Internet marketer. Â First, it allows you to hire professionals at a fraction of the cost to do things you may not have any idea of how to do.
For example, I’m in the process of setting up a forum for my website.  Personally, I have no idea how to do this from a programming stand point but by outsourcing this project it allows me to hire a professional coder to set this all up for me.
On top of that the second benefit to this is that outsourcing allows you to collapse time frames and get a lot more done with my business than I could ever do on my own. Â To learn more about outsourcing check out Elance to get started.
(We continue tomorrow with part 2)
This article was written by Chris Holdheide a personal finance blogger who writes for Stumble Forward.com, a blog about helping people avoid financial mistakes, improve their finances, and build wealth.