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Tag Archives: taxes for starting home based business
My Experience with Tax Advantages has been Beneficial
Over the years I have learned a lot about creating income from an entrepreneurial perspective. I have learned and shared a lot of experience on the difference between Active and Passive income. This blog post is designed to discuss the tax advantages of starting a home business as well as the tax benefit for those who are already working full-time.
I have personally operated a number of successful profitable part-time home businesses. For the past two years I have been full-time at home. Every year I enjoyed the many tax advantages.
When my home business was part-time the expenses I incurred allowed me to claim against my full-time working income as a tax advantage. Let’s take a look at my experience and through this understanding how you can also take advantage of it.
The Purpose of Taxes
In most countries tax laws are designed to benefit businesses and not individuals.
As an Employee, you pay tax that is deducted by your employer (state, provincial and federal income tax) and you also pay taxes when you purchase goods and services on a day-to-day basis including some foods, household expenses, rent, utilities, fuel for their vehicle, etc.
Business Tax Advantages Are Not Well Known
One of the most significant benefits you can enjoy as a home based entrepreneur is the ability to claim expenses and reduce your overall taxable income in a calendar year…just like any other business.
What are the tax advantages of a home based business?
The home based business model that I have found the most enjoyable and flexible is a network marketing business as it gives you the opportunity to enjoy all the benefits this business has including numerous tax deductions. The thing is that many people do not understand this excellent business model or the tax advantages.
What are the Deductions?
I am not an accountant or tax adviser. I can speak on personal business experience for what I have received over the past 7.5 years related to my home business and full-time working career.
What we do know for sure is that the government allows you to claim tax deductions for the initial start-up investments you make to start your business. As well as your computer, your phone and internet expenses are also to be included for tax deductions.
- Home Office Deductions You can claim a percentage of the rent or mortgage costs for the space you use to operate your business such as a spare bedroom that is used as an office.Your home business qualifies for the home office tax deduction, but only if part of the home you use for your business is exclusively used for business (such as the spare bedroom). If you use your kitchen or living room as your “office area” then you will not be able to claim it as a tax deductions, as these spaces are used for other personal reasons as well.To maximize your tax deduction as an office expense assign a room that you will exclusively run your home office from. You will also find this much better in managing your time, staying focused and getting the most advantage from an organization standpoint resulting in increase success in your business.
- Home Repairs & Maintenance Many of the repairs and home improvements can be tax-deductible as well. If you rent your home or apartment you are allowed to deduct a percentage for the portion of your home used exclusively for business purposes.
As an example, lets say you own your home so the government allows you to claim a percentage of your mortgage interest paid for your home. If your home is 2000 square feet house and you have designated a 200 square foot bedroom as your home office, this would allow you to write off 10% of your mortgage interest (or rent if you are renting).
To track and record here is the spreadsheet I use.
- Home Expenses The government tax laws will also allow you to write off a percentage of personal home expenses including cleaning supplies, snow removal, home insurance, home security, electricity and other utilities all as business expenses. The percentage that you can write off is similar to the home office deduction explained above. So basically in continuing with our example you can write off 10% of your home expenses for business purposes.
- Transportation Expenses Any home based entrepreneur has a requirement to leave the home to conduct business activities. The tax laws allows you to write off the transportation expenses you incur for business related traveling, like traveling to and from meetings. Be sure to keep good records of your activities by recording the odometer of your vehicle before and after making your business trip.
- Communication Expenses Canada Revenue Agency considers the first phone line in your home as a personal expense however you can claim a percentage if it is your only line. You are allowed to claim tax deductions for any additional phone lines, including cell phones used for business purposes and internet service.
- Meals & Entertainment Expenses Many entrepreneurs will incur expenses to provide lunch or entertainment to your prospective clients. The tax laws allow you to get up to 50% tax deductions on the cost of meals and entertainment, but keep good records and save receipts.
- Travel Expenses. One of things I like most about the network marketing profession is the ability and freedom it affords to enjoy travel. You can enjoy the freedom of travel for business to conferences, training events, luxury vacations and claim the costs of your flight, hotel and any meals that you need to eat while out-of-town. This is only deductible for “business related travel” however it can be a significant deduction.
There are a lot of Advantages
As you can see running a home based business can provide you with a lot of tax advantages and deductions that otherwise does not exist when just working as an employee.
These deductions can be beneficial regardless if you are a full-time or part-time entrepreneur. You will want to keep track of all your receipts and expenses in an organized system such as an expense report.
This is the spreadsheet I use on a monthly basis to keep track of my business expenses.
December is the PERFECT Month to Start a Business
If you are reading this article in December 2012 you have limited time left to take advantage of the tax benefits. Now is time to get started in your business and take advantage of the many tax advantages.
The significance of this month is offset your full-time working Employee income with your start-up investment, claiming a loss in your first calendar year (2012)…therefore reducing your total overall income taxes paid for the year. In some cases depending on your salary you may even enjoy a refund from the government simply from starting your business in December.
This strategy will set you up to be in a great position to maximize your 2012 tax situation as well as get you started as you embark on a New Year with a new focus, direction and desire for your future – financial freedom!
Why Pay More Taxes…?
If you have been thinking about embarking on a home business adventure there is no better time to start than the month of December. Starting before the end of a calendar year makes you eligible to claim your start-up investment in the same calendar year thereby giving you a tax benefit on your salary.
Putting it off until the New Year you will either not see this tax benefit until you file your taxes for that year or most likely your business will be a profitable situation very soon and you will be using your expenses to reduce your income tax paid on that income. So why wait?
If you are searching for an opportunity to start at home business ‘Now’ is the time!