Are
You An Innocent Victim of These Popular Myths?
Misconceptions,
misinterpretations and just plain “untruths” are floating
about income taxes. Believing them could be costing
thousands of tax dollars!
Myth: A Professional
Tax Preparer knows all there is to know about taxes
so you don't have to know anything them.
Truth: Tax
Preparer's/CPA's/Accountants are not uniformly informed
about ALL tax laws. Most are able to file a personal
income tax and know all the laws and how to apply them
to personal income tax.
There are
thousands of excellent, hard-working accountants doing
a great job. And if you use a tax professional, maybe
they have done everything possible to reduce your taxes.
But many professional tax preparers are just tax preparers.
They may
know how to prepare a tax return in their sleep. They
know what numbers go on which form. But that's about
all they know.
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.
Myth: You
must "itemize" in order to take Home-Based Business
expenses.
Truth: Many
people misunderstand the terminology here.
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 2003 taxes…$4,700 single,
$9,500 married)
Some people
call this filing "long form."
All taxpayers
have the opportunity to itemize if it is to their advantage.
Whether you
"itemize" or not has NO bearing on your Business.
Myth: You're
not making a profit so there is no advantage to filing
business income taxes.
Truth: This
is so not true! There's 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.
Myth: Because
you work a full-time job your Internet Marketing Business
is just a hobby.
Truth: Only
another Internet Marketer can truly understand the hours
and money spent on what someone else would call a "hobby"!
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 advisors. 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. Time and
Effort the Taxpayer puts into ‘running the business’.
They just want to make sure you're running a real business,
not just engaging in a hobby. How much “time and effort”
is enough? The United States Federal Tax Court has ruled
that “45 minutes a day, 4 to 5 days a week” qualifies.
I can't see
anyone who is in Internet Marketing with a profit motive
not qualifying here!
3. The Manner
in Which the Taxpayer Carries On the Business Activity.
This one is common sense. Do you conduct your business
mostly on the telephone, over the Internet and in-home
presentations (these are good), or mostly at the golf
course, during lunches and at the pub (not so good).
Just treat your business like a business.
4. Is the
Primary Purpose of your activity to ‘Produce a Profit,”
or to ‘Produce Tax Write-offs’? The best way to Pass
the profit-motive test, is to have a Business Plan,
and That Business Plan should include a table of Income
and Expense projections, clearly showing profitability
at some point in the future. Note that you are not required
to actually produce a profit in order to qualify for
home-business tax deductions -- just to show that you
have the intent to produce a profit.
If you are
doing all this then there is no reason for your business
to be considered a "hobby".
Myth: You
must make a profit within 5 years to be considered a
"business" and file Home-Business taxes.
Truth: That's
a generalization. Yes, the government would like to
see you make a profit within 5 years but you are not
penalized for not doing so. If you are following the
above 4 rules and conducting yourself as a business
you have nothing to worry about. You are a business
and some businesses are not profitable for a number
of years.
Myth: Learning
how to reduce you taxes is hard and complicated.
Truth: Average
Small Business Owners have plenty of tax reduction strategies
at their disposal. You just have to know what they are
and how to use them.
Once you
learn what deductions are allowed you will know what
figures your Tax Preparer/Accountant needs and you can
configure your accounting accordingly.
Myth: Accounting
and tax documentation for the Home-Business is not for
the do-it-yourselfer.
Truth: All
Small Business Owners can easily keep their own books
using any number of software programs. It is not necessary
to have an accountant.
No, you will
not have to learn accounting. You will just need to
be able to "categorize" and record expenses and sales.
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 Workman
is a 30-year veteran Home-Based Business Owner who specializes
in Tax Preparation for Home-Based Businesses. Karin
also wrote the Hot New Ecourse: "Reap the Rewards!"
Designed to help you save tax dollars and put more money
into YOUR pocket. The course is Free exclusively at:
http://reaptherewards.businessoppsunlimited.com
Article Source:
http://EzineArticles.com/
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