Believe me when I tell you, if you're planning on taking business deductions, you'd better be able to prove to IRS that you have a genuine profit motive. How do you do that? By keeping proper books and records. By keeping business and personal expenses separate. By keeping business and personal income separate. By running a genuine business, in other words.

Here's how it works.

Let's say you have a spare room in your house that you use exclusively as a home office. Over past 12 months, you've bought a computer, desk, chair, printer and fax machine. You've decided that you want to start a home- based online business on side while you continue to work in your job. You spend several hours a day researching ideas for your new business and you spend a small fortune on your high-speed internet connection, and various information products relevant to your area of interest.

Because you're running a business, one of first things you're going to want to do is get a system for your business records set up.

Keep a record of all expenses as they're incurred so that when tax time comes around, everything is at your fingertips. I use Excel spreadsheets for this - one spreadsheet for every expense category. Here are categories I use (use whatever categories make sense for your business though):

Advertising and promotion Software* Web Hosting and Domain Name Registration Fees ISP/Cable Modem Fees Office Expenses Content Subscription Fees Telephone*** Bank Charges Books and Magazines Equipment** Furniture** Bad Debts Home Office Deduction

* Usually has to be depreciated over several years unless it's software that needs to be updated frequently such as anti-virus software.

** You can either depreciate these items over time or you can write off 100% during year of acquisition up to a maximum of around $20,000.

*** If you only have one phone, you'll need to apportion expenses between personal and business. On other hand, if you have a second line exclusively for you business, you can write off 100% of expenses for second line.

Every time I pay a business expense, I enter details in appropriate spreadsheet. Very easy.

Then, when time comes to file your tax return, you just need to prepare a Schedule C (for individual taxpayers). If your business makes a loss (i.e., expenses you pay out are more than revenue you bring in from your business), that loss is deducted from your income from all sources, thereby reducing your taxes.

But, best of all, if you qualify for home office deduction, you can take a proportionate share of your mortgage or rent payments and your utilities and apply them as a deduction against your business profits, but only to point where profit from your business equals zero. In other words, home office deduction cannot be used to create a loss situation. But even if you can't deduct it this year (because your business has already made a loss), it's not lost. You can carry it forward to future years to be applied against future profits.

So, as you can see, even if you're only in information- gathering/learning stage of your business, if you have a profit motive you're nonetheless in business and you can and should be writing off your business expenses even if you're yet to start generating revenues.

Make sure you keep proper records and substantiate all expenses though. The IRS is, of course, well aware of potential for abuse of home business tax deductions and will be paying close attention. That's fine though. If you have a profit motive, you ARE running a business and you're *entitled* to take any legitimate deductions that are available to you. To do anything less is to leave money on table.

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Elena Fawkner is editor of A Home-Based Business Online ... practical business ideas, opportunities and solutions for work-from-home entrepreneur. http://www.ahbbo.com Also, visit Elena's newest site, Web Work From Home http://www.web-work-from-home.com

Elena Fawkner is editor of A Home-Based Business Online ... practical business ideas, opportunities and solutions for the work-from-home entrepreneur. http://www.ahbbo.com Also, visit Elena's newest site, Web Work From Home http://www.web-work-from-home.com

Take this "one-day challenge".

Today, try these alternatives to sitting and watching "hourglass" on your monitor while waiting for your computer to finish a task!

~ Organize your desk ~ Sharpen your pencils ~ Make a quick phone call ~ Check your "to-do" list; if you don't have a "to-do" list make one ~ Write a fast note to a friend ~ Put in a load of laundry ~ Go to bathroom ~ Get another cup of coffee ~ Pay a bill ~ Catch up your checkbook entries ~ Pick up your office ~ Brainstorm an idea ~ Stand up and stretch ~ Day-dream for about a happy thought for 90 seconds!

Carefully watch how much time you spend in front of computer waiting for it to do something and then see how many things you can accomplish with that time.

Nothing could reward you more than developing a consciousness about how you spend those spare moments that add up to enough time to write a book, take a trip with your family or take positive actions that will change your life forever.

Use your "spare change" time to accomplish things you claim you never find time to finish!

(c) Jim Edwards

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