Misrepresentations to Small Home-Based Businesses That Are Causing Millions to Overpay Their Taxes!

Myth #1: A Professional Tax Preparer knows all there is to know about taxes so you don’t have to know anything about them.

Truth: It is impossible for anyone to know ALL the tax rules. Updates to CPA’s/Accountants and Tax Preparers usually only include laws that pertain to PERSONAL income taxes.

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.

Even excellent tax people are not trained in tax reduction strategies. As a home-business owner you should know what deductions you are allowed and present the figures to your tax preparer.

Untruth #2: Home based business expenses can only be used if you “itemize” your return.

Truth: All taxpayers have the opportunity to itemize if it is to their advantage. 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).

Untruth #3: There is no reason to file business income taxes if your business did not make a profit.

Truth: There are many tax advantages to filing a home business tax return and especially so if you are not making a profit. If you work in addition to having a home-based business in is in your best interest 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.

Myth #4: Because you work a full-time job your Internet Marketing Business is just a hobby.

Truth: The rules clearly state you have a business if you meet 8 rules. Four of the most important rules to meet are:

1. Expertise of the taxpayer or his/her advisers. That would mean your expertise in Internet Marketing or those who advise you. If you’re learning and actively applying what you learn to your Internet Marketing activities and have a good “handle” on this you qualify.

2. The United States Federal Tax Court has ruled that 45 minutes a day, 4 to 5 days a week qualifies the Time and Effort stipulation.

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 reason for having a business is to produce income instead of create tax write offs then you qualify. It does not make any difference if you actually make any profit. Just to show that you have the intent to produce a profit.

If you meet those 4 standards your business would be classified as a business not 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.

Untruth #6: Learning tax reduction strategies is complicated and hard to understand.

Truth: Learning tax reduction strategies is not hard for the average person. There are good books written for the average business owner to learn what is available to them

Misconception #7: Tax documentation and accounting are not for a home business is not for the average person.

Truth: If you can “categorize” and record expenses and sales using accounting software, you do not need an accountant. It only takes 5 minutes a day and your records will withstand any government scrutiny.

Related posts:

1. What Are the Best IRS Deductions for Me?
2. Tips for Preparing your Taxes