TAX BENEFITS FOR YOUR HOME BUSINESS
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 program fees."

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 these.

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