Posted on: 12 February, 2002
Author: Doris Dobkins
I'm busy enough! I don't have time to start a ... good would it do me ... having your own business is one of the best ways to save money ontaxes and ... that many of you jus I'm busy enough! I don't have time to start a business!What good would it do me anyway?Well, having your own business is one of the best ways to save money ontaxes and considering that many of you just finished paying Uncle Samall your wages from January to May 2000, I thought you might beinterested in this topic.Consider this example.If you work for someone else (as in a JOB), your finances flow somewhatlike this:1. Earn the money2. Pay Taxes3. Spend the moneyWhen you have your own business or corporation, you:1. Earn the money2. Spend the money3. Pay Taxes on what's leftDo you see the difference here? I'm going to recommend a book for youto read if you want to understand this process better. It is called"Rich Dad Poor Dad" by Robert Kiyosaki. It is a great book and I highlyrecommend it. Now, back to our article.When starting a business, The IRS requires only that you keep goodrecords, conduct your affairs in a business-like manner and show thatyou are trying to make a profit. There are also some new tax laws thatare even more in favor of those "home offices" than in previous years.Old Tax Law: If your home office is your principal place ofbusiness, then you could deduct home office expenses.New Tax Law: If you have a space at home that you use "regularlyand exclusively for administrative or management activities" in yourbusiness, you may now qualify for a home office deduction.Previously, if you worked outside of your home, you weren't allowed todeduct your home office because it isn't the "primary" place ofbusiness. Now you can. For more information, see the Internal RevenueService publication #587 on the IRS Web site, http://www.irs.treas.govThere are a lot of deductions associated with home offices. Somethings that might be deductible include a percentage of your mortgageinterest, property taxes, rent, utilities, insurance, garbagecollection, second phone line, cleaning fees, magazines/newspapers,office supplies and equipment.If your home is the principal place of business, you are allowed todeduct the mileage for all your business trips. You can count themileage from your home to the place of business (i.e. post office,bank, client site) and the return trip. The IRS requires that you keepgood records of your driving. Keeping a little pocket calendar in yourcar or handbag is an easy way to track mileage on a daily basis. At32.5-cents a mile, every 307 miles of driving will earn you a $100deduction. This can add up very quickly over the course of a year. Iknow it does for me.If you have children under 18, hire them to work in your business. Youmust issue them a W-2 and all the money you pay them is a businessdeduction for you. Your child must pay taxes on the money they earn butthere is no tax on the first $4,300 of income earned from working. Yourchild can even deposit up to $2,000 into an IRA account for even biggersavings. There's also no Social Security tax to pay when you hire yourchild under 18. Please remember that your child must do real work andyou must keep good records. I know people who send their children toprivate schools on tax-free income. They pay their child to work intheir business and the child uses that income to pay tuition.Are you starting to see some of the possibilities here?Any purchases you make in association with your business aredeductible. If your business is enjoyable and related to yourinterests, you might have made some of these purchases anyway and nowthey are deductible.If you are going to have a business for tax reasons, your intent shouldbe to make a profit at some point. The IRS knows that there aresignificant costs in starting a business and that it might not beprofitable for a few years. A general rule is to show a profit withintwo to four years. The longer you go without making a profit, the morelikely the IRS might consider your business a hobby and disallow thedeductions you are claiming unless you can show a business plan with adefinite plan to be profitable and show changes when needed to increaseyour chances for profitability.So once again, consider a side-business. It could save you hundreds oftax dollars every year. Article Tags: Home Office Source: Free Articles from ArticlesFactory.com