An Introduction to
Huge Tax Breaks
Passed by Congress
to encourage and stimulate
Small & Home Based Businesses
Has anyone ever told you that you can get a lot of
valuable tax breaks when you are self employed or if you have a small
Probably. But did any of those well-meaning people
tell you what those valuable tax breaks are? Or how
to qualify for them? Or what
records you need to keep?
Well, if you don't
- What they Are,
- How to Qualify, or
- What Records to Keep,
...what value is their advice?
Or maybe they tried to "help" and told you things
- "You can write-off all
of your car expenses if you put a magnetic sign on it" (which is
wrong, by the way), or
- "The minute you sign-up
you can start writing off lots of personal expenses" (which also is
not quite true).
Giving you bad information is worse than telling you
nothing. Will Rogers once said, "It ain't what people know that's
dangerous, it's what they think they "know" that just ain't
Maybe your friend gave you the correct information
about a tax deduction or two, but "forgot" to mention that there are certain
steps you must take in order to qualify for them. Have you ever
heard the saying, "He/she knows enough about a topic to be dangerous, but not
enough to be useful?"
Does that mean you should
"Play it Safe"
When claiming Business Deductions?
Let's think about this... If you can't afford to
get a speeding ticket, but you don't know what the speed limit is, what do you
do? Duh! Drive slower, of course -- "just to play it
Is that the way you handle your tax deductions
too? If you aren't sure "what the speed limit is," you back-off on your
deductions -- "just to play it safe" -- right?
But you don't do that when you are sure
of the tax law. For example, if you have three kids, do you claim only
two of them "just to play it safe?"
Of course not!
Why not? Because you know the law lets
you deduct all of your kids, and because you know how to count to
What would it mean to you, if you were as
certain about tax laws that provide deductions for your small
business, as you are about claiming deductions for your dependents?
You'd save a boatload in taxes, that's what it would
Understand, we're NOT talking about using "tax dodges"
or "loopholes" or "gray areas" or "tax evasion schemes."
We are talking about tax laws passed by the United
States Congress specifically to encourage taxpayers like you and
me to actively operate a small or home-based business - even on a part-time
basis - with the intent to make a profit.
Why does Congress
fastest-growing business category -- for several years in a row -- has been
Small Businesses. Encouraging continued growth in that segment simply
makes sense for our national economy.
unemployment puts a huge drain on the economy, and the leading
job-growth category, again, is Small Business. Job growth = lower
unemployment = strong economy.
every taxpayer had a part-time home-based business as a "safety net" or
"back-up plan," a mass-layoff by a large employer would have less of a damaging
impact on the economy.
If thousands of people suddenly were to be laid-off
from their jobs without notice (does the name Enron ring a bell?), the first
steps most would take would be to quickly polish-up their resumes, check the
Help-Wanted ads, and head to the Unemployment Office - not necessarily in that
BUT NOT YOU. If you have a part-time home-based
business, your first action
could be to ramp-up your part-time business into a
full-time business. Unlike many of the others
who were also laid-off, you could almost-immediately replace a large
portion of your lost wages, with an ongoing source of steadily increasing
That's why Congress passed HUGE tax breaks to encourage the start-up and ongoing operation of
You are about to get a map to a lot of
"free bridges," i.e., small-business tax deductions that are 100%
IRS-compliant, easy to qualify for, and simple to document.
Most taxpayers (and most professional tax
preparers) are clueless about these small-business-friendly tax breaks, for a
variety of reasons&
The media gave very little
publicity to these laws when they were passed,
Small-business tax law is
not taught in most accounting schools,
Knowledge of small-business
tax law is not even tested on CPA exams,
IRS "clarifications" focus
on what you cannot deduct, not on what you
Here's how your business
In order to be "IRS-compliant," you
- Be able to
Prove & Demonstrate that you Intend to make a Profit.
Have a written Business Plan
Determine when you expect your
business to become profitable
Continually be improving and
expanding your business
- Work your business on
a Regular and Consistent basis
and consistent activity more important than the number of
As little as 45 minutes, 4-to-5
days a week satisfies the Tax Court
Notes in your day planner will
help document your business activities.
- Maintain Accurate
Record All Business
Deposit all business income into a Business-only checking
Keep a running log showing, for each check received:
income (company name, etc.)
income received (i.e., Products Sold, Commissions, Bonuses, etc.)
Record All Business
Use a business-only checking account for all business
The purpose is to keep from co-mingling personal money with business
Use one or more credit cards exclusively for business
Keep from co-mingling personal and business charges
Interest and fees on business-only cards are Tax
Record Your Business
A Daily Diary is acceptable documentation(IF
it is accurate and complete)
regular and consistent activity(vs.
irregular, inconsistent activity)
Now that you know
Three Steps to Qualifying,
Can You Deduct?
Very few expenses are "always deductible." In
most cases deductibility depends on why you incurred an expense,
how you intend to use the product or service purchased, whether a
purchase was exclusively for business use or partially for
business use, etc.
Here are examples of some of the major categories of
VEHICLE USE: Your vehicle
can net you a deduction worth 40½¢ per mile or more when used for
business. That's a deduction of more than $4,000 if you
drive your car 10,000 miles for business purposes. Deductions can be even
higher if you alternate the use of two vehicles. There's even a legal way to
convert non-deductible commuting, into a tax deductible business expense!
(See next section.)
VACATIONS: With the proper
combination of knowledge and planning, your
non-deductible "vacations" could be converted into
tax-deductible "business trips." Many people save thousands
every year this way. This deduction is worth somewhere around
$2,000 to $3,000 a year for almost anyone who takes annual
vacations. It's 100% legal, but you have to follow some easy rules.
(See next section.)
CURRENT EXPENSES: If you use
a portion of your home exclusively and regularly for business
purposes, then a percentage of your rent (yes, finally renters get a tax
break), utilities, homeowners or renters insurance, general maintenance and
upkeep, cleaning services, and other "indirect expenses" that you are already
paying for in after-tax dollars, could be converted into tax-deductible
business expenses. This deduction has proven to be worth around
$4,000 to $5,000 for many people. But there are some restrictions
to be aware of. (See next
HEALTH CARE COSTS: If you employ
your spouse part-time in your home-based business, and provide him or her with
a formal, legally structured "Employee Benefit" called a "Self-Insured
Health Cost Reimbursement Plan," you could deduct, as a business expense,
every dollar spent on any kind of health care that is not
reimbursed under any insurance policy - for your entire family
(which includes YOU). This deduction is worth an average of $3,500 for
the typical family of four. There are three important steps to setting
this up legally. (See next
COMPUTERS, PHONES, ETC.
Equipment which you purchase specifically for use in
your small or home-based business, can now be fully depreciated in the year of
purchase (this is a HUGE new benefit!). This applies to computers,
fax machines, printers, routers, scanners, digital cameras, cellular phones),
office furniture and most other business equipment. In 2005, this
"Section 179 Election" could be worth up to $105,000 in a single
year! (See next
MEALS & ENTERTAINMENT:
You probably already know that, when you "pick up the tab" for
Dining with or Entertaining your clients, customers, prospects or
anyone else who could contribute to the success of your business, you can
deduct 50% of the cost. But did you know that, under circumstances
which you can control, you could also include your spouse and kids, and
deduct their expenses also! Do you know how to deduct the cost of your
own meal without picking up the tab for the person you talked
business with? These are all 100% legal deductions, IF you know and
follow some simple rules. (See next
EVEN THE "ALLOWANCE" YOU PAY YOUR KIDS!
Federal Tax Court has ruled that a child as young as 7-years-old can
perform meaningful services as an employee of his/her parent(s) in a home-based
business. The wages you pay your children are tax deductible for
you as a business expense, and the income to the minor is
tax-free (up to $5,000 per child, per year). This deduction can be
worth up to $15,000 to a family with three dependent children.
The rules are very specific, but easy to follow. (See next section.)
What Should You Do
You've just been introduced to nearly $40,000 in
additional tax deductions you could qualify for if you operate a legitimate
business with a profit-intent.
But you've read several times now that, to qualify,
"you must follow some simple rules." Where do you find out what those
simple rules are?
The ONLY "Plain English" Step-by-Step
Guide to Home-Business Tax Breaks Authorized by Congress, is
Business Tax Savings Made Easy!"
This is your "rule book" and your "map to the free bridges." Every tax
break you've just been introduced to is legal, ethical and honest, and this
book gives you the documentation to prove it. Immediately following
the step-by-step discussion of each major tax deduction, is a reference to the
specific Article in the IRS Code, or the specific Congressional
Tax Law, or the specific Federal Tax Court Ruling that authorizes
If someone (including your own tax preparer) says they think one of these
deductions may not be legal, simply refer them to the specific source cited in
the book, and they will quickly conclude that they were misinformed or
uninformed, and that you are correct. These deductions are crystal
Remember our discussion earlier about "playing it safe?" When you
understand what the law says and what the rules are, "playing it safe" is no
longer an issue.
"Home Business Tax
Savings Made Easy!"
is the only plain-English
step-by-step guide to understanding home-business tax laws that can save you
thousands, how to qualify for each of them, and how to keep audit-proof records
without it being a chore. But it is not available in bookstores.
To order, visit this web site:
Ronald R. Mueller, MBA,
President of Home Business
Tax Savings Institute, and Author of
"Home Business Tax Savings