 -- Baby Boomers -- Family - -- Green -- Home and Auto -- -- In Critical Condition -- Lifestyle -- -- Just Starting Out -- Money -- |
|
|
share your thoughts about frugal living at TDS Community Subscribe to Our Money Saving Newsletter Also In This Week's Issue Fighting your health insurance company Best and worst cars for holding value More Stories About: |
I'm busy enough! I don't have time to start a business! What good would it do me any ways? Well, having your own business is one of the best ways to save money on taxes. When starting a business, The IRS requires only that you keep good records, conduct your affairs in a business-like manner and show that you are trying to make a profit. There are also some new tax laws which are even more in favor of those "home offices" than in previous years. Old Tax Law: If your home office is your principal place of business, then you could deduct home office expenses. New Tax Law: If you have a space at home that you use "regularly and exclusively for administrative or management activities" in your business, you may now qualify for a home office deduction. Previously, if you worked outside of your home, you weren't allowed to deduct your home office because it isn't the "primary" place of business. Now you can. For more information, see the Internal Revenue Service publication #587 on the IRS Web site, www.irs.treas.gov There are a lot of deductions associated with home offices. Some things that might be deductible include a percentage of your mortgage interest, property taxes, rent, utilities, insurance, garbage collection, phone bills, cleaning fees and alarm systems. If your home is the principal place of business, you are allowed to deduct the mileage for all your business trips. You can count the mileage from your home to your place of business (i.e. post office, bank, client site) and the return trip. The IRS requires that you keep good records of your driving. Keeping a little pocket calendar in your car or handbag is an easy way to track mileage on a daily basis. At 31-cents a mile, every 322 miles of driving will earn you a $100 deduction. This can add up very quickly. If you have children under 18, hire them to work in your business. You must issue them a W-2 and all the money you pay them is a business deduction for you. Your child must pay taxes on the money they earn but there is no tax on the first $4,300 of income earned from working. Your child can even deposit up to $2,000 into an IRA account for even bigger savings. There is also no Social Security tax to pay when you hire your own child whom is under 18. Please remember that your child must do real work. Any purchases you make in association with your business are deductible. If your business is enjoyable and related to your interests, you might have made some of these purchases any ways and so now they are deductible. If you are going to have a business for tax reasons, you're intent should be to make a profit at some point. The IRS knows that there are significant costs in starting a business and that it might not be profitable for a few years. A general rule is to show a profit within two to four years. The longer you go without making a profit, the more likely the IRS might consider your business a hobby and disallow the deductions you are claiming. Another positive side to home office deductions is that they not only reduce your taxable earnings but your self-employment taxes as well. So once again, consider a side-business. It could save you hundreds of tax dollars every year. Doris Dobkins is publisher of $MART MONEY NEW$ and editor of the Web site www.creativefinances.com To subscribe, send an email to news@creativefinances.com or visit our Web site! Do you have a time or money saving idea that wasn't included in this article? Please send it to tips @stretcher.com. We get the best ideas from our readers!
Additional Dollar Stretcher Articles: Ancient Financial Wisdom Stress-Free Frugality Surviving Limited Income
Best and worst cars for holding value
Wife hopes car loan will build credit
Our Sponsor
Check Your Credit Now |
Copyright 1996 - 2008 "The Dollar Stretcher, Inc.". All rights reserved unless specifically noted.
Write to the Dollar Stretcher at:
Dollar Stretcher
PO Box 14160
Bradenton
FL 34280-4160
941-761-7805 voice
941-761-8301 fax
"The Dollar Stretcher, Inc." does not assume responsibility for advice given. All advice should be weighed against your own abilities and circumstances and applied accordingly. It is up to the reader to determine if advice is safe and suitable for their own situation.
