... ... and just plain ... floating about income taxes. ... them could ... ... of tax ... ... Tax Preparer knows all there is
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.
