Misrepresentations to Small Home-Based Businesses That Are Causing Millions to Overpay Their Taxes!
Untruth #1: Tax professionals are trained to know everything about taxes so I don't need to know about them.
Truth: Professional Accountants/CPA's and Tax Preparers are not consistently informed about ALL tax laws. These people know personal income tax laws and know how to apply them.
Your tax professional may have done everything possible to reduce your taxes. Most do not look for reductions but know how to prepare your return in their sleep. They know what numbers go on what form. They are doing a great job of preparing taxes.
A good tax preparer is not trained in tax reduction strategies. The only way you are assured to get the tax deductions you are entitled to, as a Home-Based Business Owner, is to become informed yourself.
Untruth #2: Home based business expenses can only be used if you "itemize" your return.
Truth: Whether you "itemize" or not has NO bearing on your Business. When you "itemize" your income tax you file Form A&B and take such things as medical, home mortgage interest etc. You will only "itemize" if the total of Form A is over the standard deduction (for 2008 taxes$5,450 single, $10,900 married).
Misconception #3: There is no advantage to filing business tax forms if you are not making a profit.
Truth: This is so not true! There are many tax advantages to filing a Home-Business tax return and especially so if you are not making a profit. If you also work a job, be it part-time or full time, in addition to your Home-Based business it is especially beneficial to you to file a business tax return. Expenses incurred in your business can be taken against your job income thus reducing your taxable dollar, which decreases your tax liability.
Misconception #4: Your Internet marketing business is just a hobby because you hold a full time job.
Truth: The rules clearly state you have a business if you meet 8 rules. Four of the most important rules to meet are:
1. The knowledge of the taxpayer or his/her advisers. If you are developing a home-based business and actively learning and applying business principals to your business...you qualify.
2. The time and effort you put into 'running your business'. The United States Federal Tax Court has ruled that 45 minutes a day, 4 to 5 days a week qualifies.
3. The way you carry on your business activity. If you conduct your business mostly on the telephone, over the Internet and in-home presentations you'll do fine. On the other hand if you do most of your business on the golf course, during lunch or at the bar you have a hobby not a business.
4. If your primary objective is to produce a profit you qualify as a business. On the other hand if your primary objective is to produce tax write offs the IRS will frown on that. You don't have to actually yield a profit in order to qualify. Just show that you have the intent to profit.
If you are doing this then there is no reason for your business to be considered a "hobby".
Untruth #5: If you don't make a profit within 5 years you won't be considered a business and can't file home business taxes.
Truth: The government would LIKE you to show a profit within 5 years but there is no penalty if you do not. Follow the 4 stipulations above and conduct your home business as a business and there is nothing to worry about. You are a business and some businesses do not make a profit for a number of years.
Myth #6: Learning how to reduce you taxes is hard and complicated.
Truth: Once you learn what deductions are allowed you will know what figures your Tax Preparer/Accountant needs and you can configure your accounting accordingly.
Misconception #7: Tax documentation and accounting are not for a home business is not for the average person.
Truth: Documentation for the government is very easy if you use a pocket calendar and keep your receipts. In just 5-10 minutes a day you can have records that will withstand any government scrutiny.
Untruth #1: Tax professionals are trained to know everything about taxes so I don't need to know about them.
Truth: Professional Accountants/CPA's and Tax Preparers are not consistently informed about ALL tax laws. These people know personal income tax laws and know how to apply them.
Your tax professional may have done everything possible to reduce your taxes. Most do not look for reductions but know how to prepare your return in their sleep. They know what numbers go on what form. They are doing a great job of preparing taxes.
A good tax preparer is not trained in tax reduction strategies. The only way you are assured to get the tax deductions you are entitled to, as a Home-Based Business Owner, is to become informed yourself.
Untruth #2: Home based business expenses can only be used if you "itemize" your return.
Truth: Whether you "itemize" or not has NO bearing on your Business. When you "itemize" your income tax you file Form A&B and take such things as medical, home mortgage interest etc. You will only "itemize" if the total of Form A is over the standard deduction (for 2008 taxes$5,450 single, $10,900 married).
Misconception #3: There is no advantage to filing business tax forms if you are not making a profit.
Truth: This is so not true! There are many tax advantages to filing a Home-Business tax return and especially so if you are not making a profit. If you also work a job, be it part-time or full time, in addition to your Home-Based business it is especially beneficial to you to file a business tax return. Expenses incurred in your business can be taken against your job income thus reducing your taxable dollar, which decreases your tax liability.
Misconception #4: Your Internet marketing business is just a hobby because you hold a full time job.
Truth: The rules clearly state you have a business if you meet 8 rules. Four of the most important rules to meet are:
1. The knowledge of the taxpayer or his/her advisers. If you are developing a home-based business and actively learning and applying business principals to your business...you qualify.
2. The time and effort you put into 'running your business'. The United States Federal Tax Court has ruled that 45 minutes a day, 4 to 5 days a week qualifies.
3. The way you carry on your business activity. If you conduct your business mostly on the telephone, over the Internet and in-home presentations you'll do fine. On the other hand if you do most of your business on the golf course, during lunch or at the bar you have a hobby not a business.
4. If your primary objective is to produce a profit you qualify as a business. On the other hand if your primary objective is to produce tax write offs the IRS will frown on that. You don't have to actually yield a profit in order to qualify. Just show that you have the intent to profit.
If you are doing this then there is no reason for your business to be considered a "hobby".
Untruth #5: If you don't make a profit within 5 years you won't be considered a business and can't file home business taxes.
Truth: The government would LIKE you to show a profit within 5 years but there is no penalty if you do not. Follow the 4 stipulations above and conduct your home business as a business and there is nothing to worry about. You are a business and some businesses do not make a profit for a number of years.
Myth #6: Learning how to reduce you taxes is hard and complicated.
Truth: Once you learn what deductions are allowed you will know what figures your Tax Preparer/Accountant needs and you can configure your accounting accordingly.
Misconception #7: Tax documentation and accounting are not for a home business is not for the average person.
Truth: Documentation for the government is very easy if you use a pocket calendar and keep your receipts. In just 5-10 minutes a day you can have records that will withstand any government scrutiny.
About the Author:
Karin Russell has owned a home business specializing in tax preparation for home based businesses for 36 years. Her blog:Home Business Owners-Reap the Rewardsgives more tax saving hints for home business owners. She highly recommends the book 'It's How Much You KEEP, That Counts! Not how much you Make'for all her business associates.
No comments:
Post a Comment