Having a home-based business is rapidly becoming a necessity in our underperforming economy.
Here are some guidelines to make sure your home-based business is not a hobby but a legitimate business. Follow these guidelines and shelve your worries about the IRS ruining your home-grown financial survival plan. These advantages are available to all businesses, even small ones.
- Write off your expenses such as membership fees, admission to industry events, subscriptions, and the tools or materials needed to establish and operate your business.
- Claim a deduction for a portion of your utilities, taxes, mortgage, or rent using the home-office deduction.
- If you drive to meetings and or clients, then you can write off part of your automobile expenses.
- Deduct any travel, meal, and entertainment costs associated with attending seminars, workshops, and meeting with clients.
- Write off your self-paid health insurance premiums.
- Put aside much more money in a SEP-IRA or similar business owner retirement plan.
- Use business losses against other income such as from a full-time job and lower your overall income taxes.
- Create and use a business entity which can help protect your assets and your personal privacy.
The key to ensuring you have a home-grown financial survival plan is to operate your home-based business in a business-like manner as defined by the IRS and to do that you must show evidence of a profit motive. As long as you accomplish this, you are entitled to claim deductions for all the expenses associated with your new business and use losses to reduce your taxable income.
Internal Revenue Regulation section 1.183-2(b) provides guidance on the elements that the IRS looks at to determine whether a profit motive exists. Some of the key elements are:
- Advertise your product or service which in the Internet Age is cheap and easy to do.
- Keep records in a business-like manner to get a handle on your revenues and costs.
- Follow reasonable business practices to be profitable and control costs.
- Already having or working to gain expertise in the area of concern.
- Spend a reasonable amount of time working in your business.
Many people are concerned about starting their own business because they have heard horror stories about people who have been audited and had the IRS reclassify their business as a hobby. In that event, you would be required to pay taxes on all the receipts without the benefit of any expense deductions.
This is a risk if your small business losses money for several consecutive years because the IRS is more likely to claim your activity is not engaged in for profit.
However, contrary to popular belief, it is important to understand there is no legal provision requiring you to earn a profit in connection with your business in order to take legitimate deductions.
At the end of the day, it boils down to a question of intent. Did you undertake your home-based business to earn a profit or did you intend to play and have fun? If the former, then you are entitled to take the deduction; if the latter, you may not take the deduction.
Many high profile business leaders, including the Oracle of Omaha, suggest that if you don’t focus on being an online entrepreneur, being self-employed, or being a small business owner, it will be a very tough road in the months and years ahead; actually they say, it will be an uphill battle.
This suggestion is attracting current and former doctors, CEOs, and other members of the corporate workforce that are seeking a way to leave their established and lucrative careers. They are in pursuit of new opportunities in the world of Social Media and Internet Marketing so they can generate income, prestige, independence, and financial rewards that exceed the levels obtained by most in their previous careers.
This blog, and related posts, will continue to provide a blueprint for making money online with Internet Marketing. You will find step-by-step road maps for various parts of the Internet Marketing business. You will find material that provides an entrepreneurial game plan generating a new approach to work, family, and lifestyle. You will find tools, education, training, and support. And you will find a community of like minded entrepreneurs that are using the Internet to get out of debt, build wealth, and secure their financial future forever.
Finally, I want to thank Lee Bellinger, editor and publisher of Independent Living and Dan Pilla, guest contributor to Independent Living, as he was the source of some of the material mentioned in this post.
In closing, be sure to Read More of my Posts at aspenIbiz BlackBox, my Internet Marketing blog; Obtain Some Tips About Being No 1 on Google at aspenIbiz My Go-To-Market Partners website; and Learn How to be Savvy with Your Money Like the Insiders at aspenIbiz The Conspiracy For Your Money Blog.
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