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2. Time and Effort
Taxpayer puts into ‘running
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
Taxpayer Carries On
Business Activity. This one is common sense. Do you conduct your business mostly on
telephone, over
Internet and in-home presentations (these are good), or mostly at
golf course, during lunches and at
pub (not so good). Just treat your business like a business.
4. Is
Primary Purpose of your activity to ‘Produce a Profit,” or to ‘Produce Tax Write-offs’? The best way to Pass
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
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
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,
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
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
Home-Business is not for
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
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.

©2004 By Karin Workman; a 30-year veteran Home-Based Business Owner who specializes in Tax Preparation for Home-Based Businesses. Karin also wrote the Hot New Ecourse: "Reap the Rewards!" Designed to help you save tax dollars and put more money into YOUR pocket. The course is Free exclusively at: http://reaptherewards.businessoppsunlimited.com