Why start a home-based business
Although the primary reason for starting a home-based business is to make money, there are a number of other reasons for starting your own business including:
You have the ability to make your own schedule and not live by a time clock or be subjected to working hours that are not conducive to your family life.
You never have to answer to anyone but yourself so no bosses will be hounding you or threatening you with your job if you don’t perform to their expectations.
You’re never chained to a desk or stuck in some cramped cubicle.
You get out of your business what you put into it, so your earnings potential is only limited by you – not the whim of the company or employer that you are working for.
Just be aware of the fact that owning your own business involves a great deal of discipline, maturity, and responsibility. The freedom involved with creating your own work schedule could also be a double-edged sword if you aren’t careful.
IRS and tax considerations
Despite the above advantages of having your own home-based business, there are other important aspects that need to be taken into consideration, namely tax planning. Taxation is a completely different animal when you own your own business because unlike having an employer that makes the deductions for you, you are accountable and responsible for handling this issue on your own. If you want to minimize your annual tax bill, tax planning is critical and needs to be an ongoing event.
Understanding the tax write-offs involved with home-based businesses The biggest mistake that many new home-based business owners make is that they focus on whether to start up that business inside or outside of the home. What they should be focusing on is the tax advantages involved. Surprisingly there are tax advantages when owning a home-based business that you wouldn’t be able to enjoy in a different endeavor. Learning more about your allowable deductions and the numerous write-offs you can take advantage of is the key. Here are a few aspects to consider:
To take or not to take the home office deduction – of all the allowable deductions and other numerous write-offs, this is probably the biggest decision that you will need to make. Even tax accountants debate over whether or not this is a smart idea. This deduction covers both the depreciation and the operating costs associated with maintaining your home office. The percentage of your home’s square footage that is dedicated to your office is normally deductible.
Maximizing the deductibility of your expenses – there are numerous legitimate expenses that may be considered for deduction over and above the ones mentioned in the prior paragraph. Home-based business overhead typically includes a variety of expenses such as advertising expenses, travel expenses, office supplies, equipment depreciation, etc. Chances are, you’re going to be surprised when you realized how many of your daily expenses are actually tax deductible.
Plan your errands with your taxes in mind – the first mile that you travel away from home is deductible so you want to incorporate a component of your home-based business into every trip you make away from home, even if you are running personal errands. For instance, if you have a PO Box set up for your business mailings, make sure that you fit in as many business cold calls as possible when travelling from your home to the post office and back.
Remember, the key to allowable home-based business deductions as well as any brick & mortar business deductions is thorough record keeping. I recommend consulting with your accountant.