US Tax Rules For A Sideline Business

I would like to focus in this article on sideline businesses and the implications they have on your tax situation. More and more people are operating business from their home and claiming the home office deduction, according to the IRS.

Those with the entrepreneurial spirit are selling on eBay and other online venues. Taxpayers are doing this with low start up costs. Sideline businessmen and businesswomen will find that tax rules apply to their business just as it does to full time businesses. This means that you will need to maintain an accurate accounting of income and expenses. You certainly is to your benefit to understand how the tax rules apply so that you can develop a strategy that will minimize the tax on your profits.

Main businesses and sideline businesses for the most part follow the same tax rules, but there are some special points that deserve close attention. First I want to touch on the home office deduction.

The cost of operating an office from home is a business tax deduction if the office is the principal place of business for you It doesn’t need to be the principal place of business for your main business, or employment. You may still qualify for a deduction as long as your home office is the principal place of business for your sideline business. Using a home office for managerial activities or administrative duties such as keeping records, scheduling appointments and preparing proposals, allows it to be treated as a principal place of business, even if the revenue is generated at another location.

You should know that a sideline business might not always be treated as a business. If you hold real estate investments or buy and sell securities, then you may not be considered a sideline business. In the case of real estate investments, holding even one property may amount to a business, depending on the level of the taxpayer’s activities. The Tax Court has held that a taxpayer’s activities constituted a business where he sought new tenants, cleaned and prepared the six units he owned, and provided furnishings for them In the case of securities, deductibility depends on whether the taxpayer is considered to be an investor or a trader. Occasional trades and long-term positions indicate investor status for which a home office deduction would not be allowed.

However, if you spend substantial amount of time managing a sizable portfolio and seeking short-term profits, you usually would be considered a trader for whom a home office deduction would be allowed.

The home office must be used regularly and exclusively for the business; personal use of the space when it is not being used for business disallows the deduction. The space need not be a whole room or even physically partitioned from the rest of the home, however its business function must be respected.

This home office deduction could be quite important because it is a way to convert nondeductible personal expenses into deductible business expenses. The deduction is composed of both direct and indirect expenses attributable to business use of space within the home. Direct expenses are those items attributable to the home office, such as painting the space. Indirect expenses are those items that relate to the entire home, such as painting the exterior of the home. The portion of indirect expenses related to the home office is part of the home office deduction. The allocation generally is made on a percentage of square footage basis.

The allocation of indirect expenses can be made on a per-room basis if the rooms are approximately the same size. In the case of depreciation for those who own their home, the deduction is figured on the home office space. The basis for depreciation is cost or fair market value, whichever is lower. Since most homes appreciate, the home’s cost typically determines basis. The recovery period would be 39 years and the percentage used would depend on the month which the space was first used for business.

The home office deduction cannot exceed the gross income of the business.. Gross income in this case means net profit as reported on Schedule C if the taxpayer is a sole proprietor, reduced by the allocable portion of mortgage interest, real estate taxes and casualty losses, if any.

Deductions for these items are used to offset gross income first. If there is any excess gross income, then it is offset by homeowner’s insurance premiums, repairs and maintenance, utilities, and rent. Finally, if there is still excess gross income, it can be offset by depreciation. The good thing is if expenses are disallowed because of the gross income limitation, they can be carried forward and treated as part of home office expenses in the following year. There is no limit to the carry forward period. These expenses are reported on form 8829.

This article is not to be used as the entire representation of tax law as it relates to sideline businesses. In other articles I will explain the hobby loss rules; discuss retirement plan options for your sideline businesses and I will explain Social Security and Medicare taxes on sideline business earnings.

Identify Your Own Internet Business Opportunity

Faster computers and broadband internet have today changed the way many things are done in the world. The same applies to business opportunities. With internet, not only is it possible to search for new and exciting business roles but also to discover new ways to market your home business online. It is now possible for groups of people across the globe to put a business plan into action through efficient online systems of communication and interaction.

Using the internet to promote your business has many unique benefits. For example, the overhead is negligible if you are operating from a home based computer. Besides, you will have access to many business tools that big companies use, and most of such tools are free or inexpensive. In addition, you can enjoy various incentives that are available to those who officially start a home based business. Finally, a major incentive for people interested in internet business opportunities is to implement their own ideas and enjoy control over their own business, while enjoying a free life.

However, even though an internet business opportunity may sound as an easy and exciting way to earn or supplement your income, it is critical to stay focussed and dedicated to the business plan. For, if it drifts to being just a casual hobby, it may not reap the desired benefits.

To get started, it is essential to choose a business opportunity for which there already exists a demand online. Because it is easier to sell to people what they want than to sell a new product of which there is limited awareness. A good online business involves research into keyword popularity. There are certain key elements that should be in place before starting any new business – a simple website for your new business, a basic understanding of bookkeeping and accounting and a thorough business plan.

It may be a good idea to constitute a team to help accomplish your internet business plans. This can be a group of people who will brainstorm with you and give you feedback when required. You can organise a team either by interacting with people on online forums or through your own friends and professional associates who may also be interested in internet business opportunities.

As your business grows, you can even have professionals in specialised roles. For instance, you could hire writers, designers, lawyers, accountants and so on. These professionals can help you expand your home internet business with their expert services. Team work is crucial in later stages because there is often a danger of losing perspective in online businesses in the absence of regular monitoring and feedback.

While starting an online business, it is recommended to begin your new venture as an extra source of income, without quitting your regular job. This implies working on this new business in evenings or over weekends. The reason this is recommended is so that you can continue to enjoy your regular pay, and also give yourself time to catch up on the learning period of your new internet business, without stretching your budget. Also, you can reinvest your business income in the initial stages to help it expand further.

Finally, there are other types of internet opportunities that can help you make money without actually starting your own business. The internet is full of offers from thousands of websites that lure you to join them. Unfortunately, many of them may be identity thieves or scammers. However, if you do your homework properly, you may land yourself the ideal source of making money online.

For such opportunities, it is essential to protect your personal information. For this purpose, you can either find a professional you can trust or learn yourself about the various protections like firewalls and anti-virus software. It is also advisable to get an external hard drive to back up all your data.

Another possibility of earning income through internet is by making use of affiliate marketing and network programs. These new innovative online marketing techniques allow you to make money even when you are not online. Once you get started initially, you can get paid on the efforts of others further down the line, thus keeping your business awake twenty four hours a day.

So far we have seen the various ways of making money through different internet business opportunities. All it takes is a certain amount of will and perseverance to get started and stay focussed. The business principles of hard work, good marketing and networking remain the same as before. What has changed is the availability of fast speed internet which has expanded the potential reach of businesses and the availability of global markets – all of this without leaving the comfort zone of your home. All you need is to do is to identify your business and get going!

Thinking Of Starting A Home Based Business?

So you’re interested in Home Based Businesses. So am I, and there’s a good reason for all the excitement. Home based businesses are the fastest growing segment of business in the United States. In addition, home based businesses are mostly cash flow based businesses. Also, about 70 percent of all home based businesses are still in operation after two years. Home Based businesses are a fantastic way to be your own boss. Many start by working at home part-time and eventually grow their business into a full time operation.

Succeeding at your home business will involve spending a good deal of time and energy, but it does not have to come at the expense of the family. Sure, you will have to coordinate your schedule to include work-only time. But, you can actually spend more time with your family and friends and increase the quality of time as well. A business in the home permits flexibility of working hours, lower start-up costs and allows family affairs to continue during business hours. Beyond the commute, the advantages include better use of time, more time with your family, flexible working hours and independence.

Even if you don’t have a lot of money, you can start a home business and enjoy the freedom of designing your own life and writing your own paychecks. Big money doesn’t come to those who do nothing. But, if you consistently follow some basic rules of marketing, you can be one of the 20 percent of home-based businesses that gross between $100,000 and $500,000 per year.

Because a home-based business doesn’t have a storefront for passers-by to notice, with no opportunity to generate walk-in business, home-based businesses need more marketing than other types of businesses, not less. However, home businesses usually spend relatively little on marketing, only about $1,000 on average, less than 2% of receipts. It’s not important that you spend a lot of money on marketing your home business. What is important is that you find a good marketing program that you can afford to use consistently. For instance, if you spend a great deal of money marketing your business for a few months and then go broke, you’re out of business. Consistency is the key. It’s a marathon, not a sprint.

“Business opportunities” which have become popular recently include products and services such as the sale of business and trading cards, medical billing, website design and hosting, vending machines, Internet marketing and prepaid phone cards. A number of companies travel throughout the United States selling home-based business “opportunities” such as the sale of distressed merchandise, discount travel memberships, T-shirts, vitamins or scholarship search services. Comparison shop other franchises or business opportunities. Successful online business opportunities typically come with high praise from current users.

Home businesses are flourishing across the country. Many of the most successful home businesses are run exclusively on the internet. Many people who start home businesses are looking for a change in lifestyle and a business that will provide that change. If you want to truly succeed, pick a product or service that you really like, market it and have fun.