The Tax Advantages Of Having Your Own Home Business!

Put an additional $5,000 of spending money per year in your pocket if you start your own Home-Based Business (HB), whether or not you are profitable...How...?

As a Home-Based Business Owner (HBO), you'll be entitled to an advantageous collection of tax breaks which will enable you to reclaim thousands of dollars in taxes - dollars normally taken out of your day job paychecks by the IRS.  

The good tax laws that allow you to benefit from substantial tax breaks are the same laws that GM and IBM benefit from.  The only difference between most HB's and the Fortune 500 companies (in the eyes of the IRS) is size, and the fact that HBO's are also eligible to deduct many expenses from their homes and daily lives.  If these expenses contribute to the success of their home business, then they are fully tax deductible!

What is deductible by an HBO?

When you discuss business out to lunch or dinner with co-workers and friends, your meal is 50 percent tax deductible.  For that matter, so are theater and sports event tickets, and other expenses relating to entertainment focused on building relationships with prospects, retail customers and other representatives.  (Remember, by definition, everyone is a potential prospect or customer of your HB)

Automobile mileage is deductible between your home office and a meeting where business is discussed, such as the meals mentioned above, or a business presentation meeting or even a golf outing with friends who are prospects!

Travel is deductible whether it be it to an industrial center or an island resort as long as the purpose is to hold a business meeting, to discuss business with other travelers, or to attend a seminar.  Your spouse's travel can even be deductible if their presence is helpful in closing the sale.

You can also deduct wages paid to your children for help in the business - and if those children are under 14 and have no other sources of income, all wages under $4,000 per year are tax free. It's a great way to help save for college with Uncle Sam's help!

You can pay with pre-tax dollars for expenses like braces, eyeglasses and visits to the doctor if properly structured through a qualified medical expense reimbursement plan - this is easy to do with standard forms.

Home computers, fax machines, telephones, office supplies, and office furniture are also fully tax deductible. But there's more....

The IRS's only requirement is that you legitimately treat your HB as a business - not a hobby. That means regularly working your business.

What counts as "regularly working" your business?

Just taking the actions you take regularly: attend required meetings, call prospects regularly, use the product, tell people about the product and, if successful, teach others to do the same.

If the people who join your business actively follow your guidance, they should make money; but even if they don't, the IRS will recognize their right to their home-based business tax breaks - If they properly document their activities and expenses!

Documentation Is Everything!

Documentation is a big word, but a simple process. It merely means writing down in your day planner all business-related activities, business- related expenses and any revenues you earn. Consistent record keeping will prove to the IRS (on the rare chance you have to) that you are truly running a business and not engaged in a hobby - whether or not it makes money.

What do these records look like?

They're simple. Just writing down who you spoke with about the business, where you went in pursuit of your business, and what you spent in the ordinary course of conducting your business - if done in a regular and consistent manner - will provide you with proper documentation and a sea of deductible business expenses!

Sure, it's a hassle writing down your business-related activities every day; but for a maximum investment of five minutes a day, the time spent record keeping is worth a minimum of $5,000 in tax savings. That's $240/hour of tax savings for the time you spent keeping track of your activities and expenses. A pretty good wage for simple record keeping!

Help from Uncle Sam What's deductible in your ordinary lifestyle expenses when you own a HB? If you legitimately work your business engaged in the following actions, here's what's deductible. Check out the math:

$500: Lunch with co-workers and other potential prospects is deductible.

$1,500: Travel expenses for you and spouse for vacations if you hold business meetings (could be to the friends you are visiting).

$1,800: Home office deduction ($150/month) for use of spare room in house out of which you operate your home business.

$1,500: Automobile mileage from home office to day job or other places where you encounter prospects and actively discuss the business. ( 30 cents/mile)

$8,000: Tax free wages for two kids without other jobs who assist you in your Home-Based Business (2 kids x $4,000 per year paid to their savings accounts for college/weddings, etc.)

$2,700: Health insurance for family (Spouse is an employee of your home based business, who chooses to include you and kids on the plan $225/month time 12 months)

That's $16,000 total tax deductible expenses x 35% combined Federal and State tax rate = $5,600 cash refund from IRS on April 15th!

Remember, to deduct the above expenses, you must be actively working your business in the lunches, trips, visits, etc. mentioned above, and be keeping proper records.  If you are an active HBO you should have no problem. Disclaimer: The above information is presented only as an example, you should consult your tax professional for specific advice.