A Home Based Business With Great Benefits
Let The Tax Genie Out Of The Bottle Starting A Small Business Expands Deduction Possibilities.This update of a column originally published Feb. 15 clarifies the standard deduction for business miles driven in 2006 and 2007. By Jennifer Openshaw
LOS ANGELES (MarketWatch) -- If you are an employee, you have little control over your tax destiny. Starting your own small business could change that a lot.
As a salaried employee you can play with 401(k) deferrals, cafeteria plans or maybe a health savings account or some other retirement plan if you qualify. Owning a rental property might also help. Other than that, you're pretty much locked in.
But here's a secret -- and believe me, I know from experience: If you start a legitimate business, even a small one, the new tax levers you'll get can really work to your advantage.
Why? Small business and entrepreneurship are part of the American Dream, and Congress wants to help out. Make no mistake -- their real hope and desire is that some of those small businesses become big ones that hire lots of people and generate more tax revenue down the road.
Upshot: you might be surprised at what you, as business owner, can write off.
Here's how it works. With a "Schedule C" business, named for the tax form used to account for it, all legitimate costs of doing business are fair game to be written off. Now, especially if your business is home-based, the natural commingling of personal and business expenses opens new possibilities. A few examples:
*Operating expenses and supplies. Anything purchased to help in your trade counts. As a part-time business or marketing consultant, or even a real estate agent, costs of a Wall Street Journal or relevant magazine subscription can be deducted. Or, as a weekend wedding photographer, you buy a ladder for better shooting angles. That counts too -- even if you also use it to remove leaves from your gutters.
*Travel. Depending on your business, travel may be deductible. Attend a conference or meet with a client -- and take the family along. Write off your individual expenses -- and since you'll need a hotel and rental car whether you're one or four, the family shares in the subsidy.
*Vehicles. It's hard to write off an entire vehicle, but you can take the mileage deduction, 48.5 cents a mile for business miles driven in 2007 (44.5 cents per mile for 2006), for legitimate business activities. Combine personal trips with that business purpose -- i.e. go to the post office and make other stops on the way, the whole trip counts. Ditto for that city trip to meet a client.
*Home office. You need to do business somewhere, and if that somewhere is a separate room in your home you can deduct costs to outfit that room, plus a prorated portion of all home expenses. So if your office is 10% of your home and you spend $5,000 to repave the driveway, write off $500.
*Other facilities. You have business records and computer backups that need to be stored somewhere. So rent a storage unit -- and if Grandma's old dining table ends up in there too, it still counts.
For those with a family and especially children old enough to perform business tasks:
*Hire the kids. Your 12-year-old computer whiz could be a tax bonanza. Hire him or her to install software, back up computers or produce DVDs of your work. Pay a reasonable wage and expense it with no worries so long as the dependent's earned income stays under the standard deduction (currently $5,350). Sweeping floors or other more traditional pursuits also qualify. And don't forget Grandma and other relatives -- their deductible wages also stay in the family.Read The Rest Of The Article
A Home Based Business Actually Works Out In Your Favor.
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