One of the most effective ways to reduce your tax burden is to have your own home based business. Sandy Botkin, tax consultant and former IRS lawyer, named the first chapter in his book, Reduce Your Taxes – Big Time!, “Why You Would Be Brain Dead Not To Start A Home Based Business (If You Don’t Already Have One)”. Many experts such as Sandy Botkin believe that owning your own home based business can lower your taxes $3,000 to $10,000 per year.

Disclaimer: This information is for educational purposes only. While this information should be accurate, it should not be considered tax advice. You should consult your tax professional to see how it applies to your situation.

Many people claim they don’t have the money to invest in a business but most of them can finance the business through tax savings. It can also be viewed as an instant raise by adjusting your withholdings to increase your take home pay.

What makes this strategy work is the fact that there are two tax systems. One is for employees where they pay taxes first and get to spend the rest. The other is for businesses where they spend the money first and pay taxes on profits. By switching many things that you would already buy from personal purchases to business expenses, you are reducing your tax burden.

First, you must operate your business like a business. You should document regular hours and show that you have an expectation of a profit. There is no “must be profitable in 3 of the last 5 years” rule as is commonly believed.

The key to deductions is documentation. By taking an extra minute or so to document expenses after they happen, not only will you keep your records current, it can audit proof the expenses.

Now, what can you shift from current normal expenses to business expenses? A lot, if you shift your thinking a little. Here are a few ideas.

Change your kids allowance to a business expense. Stop giving them money and hire them to do work in your business. Find out what it would cost to have filing or office cleaning work done and pay your kid to do it. You can control how the money is spent such as part allowance with the balance paid into their college fund.

Pay for you daughter’s wedding as a business expense. Here too, you shift from giving money to hiring for a purpose. You can start long before there is even a hint of romance and put the money in savings for when it’s needed.

Many successful work from home entrepreneurs will take lifestyle photos of their family. They hire their children as models and pay them a modeling fee, even if they are infants. The money can be partially paid like an allowance and the rest put into a college savings account. The photos are used on web pages and social media.

To get an even clearer picture, I would suggest getting the latest edition of Sandy Botkin’s book. And remember what the title of his first chapter is.