TAX BENEFITS FOR YOUR
by: Cary Christian
If you haven't filed your tax return already and do not plan to file for an
extension, tax time is just around the corner. So, it's a good time to
remind you of a few things that can keep some of your hard-earned money in
YOUR pocket rather than giving it to the government.
Your home business is just that: a business. Business income is taxable, of
course, but the expenses you incur related to your home business are
deductible as well. Many people forget to deduct everything they are
entitled to or do not realize that some expenses that are otherwise personal
might be partially related to their business.
You will report your business income and expenses on Schedule C, "Profit or
Loss from Business." Many of the deductions you can claim are listed on the
form itself, but others are not. Do not assume that because an expense is
not listed it cannot be deducted.
Let's look at some of the expenses you are probably incurring and might
forget to deduct.
1. Advertising - If you buy ezine ads, use the pay-per-click search
engines, pay for search engine submissions, pay for a marketing program, or
anything similar, these expenses are deductible as advertising. Make sure
you keep good records of everything you've spent. Go through your credit
card and bank statements to make sure you get them all.
2. Affiliate programs - If you joined affiliate programs that require
you to pay a monthly fee, that fee is incurred in the production of income
and is deductible as a business expense. It's a direct cost of producing the
income you make from the program. You could deduct it under the category of
"commissions and fees" or include it in "other expenses" as "affiliate
3. Web site related fees - The cost of maintaining and running your
site is a 100 percent deductible expense as are your annual domain name
registration fees. Carefully go through your expenditures for the year and
make sure you capture all costs related to your website.
4. The cost of your Internet service - Your monthly payments to your
ISP are probably 100 percent deductible as well. There could be a personal
portion that is not deductible if you use the Internet for pleasure as well
as work, but if you are truly working hard on building your online business,
the major portion of these fees should be deductible. Look at the time you
spend online and make a reasonable apportionment of this cost.
5. The cost of your phone line - If you maintain a separate phone
line for your Internet service, allocate the cost of that line in the same
manner you allocate the cost of your ISP service. If you have decided that
80 percent of your time online is spent running your business, then 80
percent of the cost of that phone line is deductible. Even if you do not
have a separate line for Internet service, you will still allocate a portion
of the cost to your business because you are using it for business purposes.
6. Computer equipment - If you purchase new computer equipment,
printers, modems or similar items for use in your business, you would
generally claim depreciation on these items as a deduction. Section 179 of
the Internal Revenue Code, however, allows you to expense up to $24,000 of
equipment acquisitions in the year they are purchased. (This is the amount
for 2002. It goes up in 2003). This is a tremendous subsidy that you should
take advantage of. If you have difficulty determining how to claim this
deduction, send me an email and I'll help you.
Even if you didn't buy new equipment during the year, you can depreciate the
equipment you have.
7. Business use of your home - If you regularly use a portion of your
home SOLELY for business, you can deduct depreciation, interest,
insurance, utilities, repairs and other expenses that are related to the
portion you use for business. Doing this carries some danger with it,
however. Read my article called "Dangerous Deductions" in the Home Business
Articles section of our website before you do this.
However, if you rent your home, there is really no downside to allocating
part of your rent and other housing costs to your business.
8. Dues and subscriptions - Do you belong to any membership sites
online or subscribe to magazines related to business? Don't forget to deduct
9. Look through all of the expenses listed on Schedule C. Familiarize
yourself with them and then go through your credit card and bank statements
to make sure you do not miss any expense that might be related to your
business in some way. You'll be surprised at what you find.
If you're relatively new to online business, you're likely to find that the
expenses you've found exceed the income you've produced. In other words, you
suffered a loss. This is good from a tax standpoint. The loss carries to
line 12 on Form 1040 and is deducted in arriving at Adjusted Gross Income.
Since several itemized deductions, such as medical expenses, are limited by
a percentage of Adjusted Gross Income, the deduction of the business loss
will actually increase your deductions for these types of expenses.
Take some time to identify all the deductions you are entitled to. It will
be well worth your time.
Copyright (c) 2003