The idea of starting a home based business is very appealing these days with the US economy doing so well. Nowadays, people are also interested in starting a home business because they wish to escape the pressures of work and spend more time at home with their families and loved ones.
However, while the advantages of a home business cannot be denied, there are certain limitations and disadvantages as well that can hinder your success. The biggest of these hindrances is taxes. Tax is something no business can avoid however there are legal loopholes that one can jump through to avoid paying taxes on home business earnings.
These legal loopholes are great because they can help a home business grow to its full potential while at the same time make sure that these small firms are not breaking the law. While there are a number of tax breaks, rebates and deductions already available for home based businesses and their earnings, these legal loopholes are perfect because of the limited resources a home business has at its disposal.
The most important thing that any home based business owner should know is that there is a new law for defining a home business. This law is actually quite simple and it requires that your home business office must be used exclusively for business purposes only. This means that you cannot use your living room or your dining room as a home office to take advantage of this tax deduction. As long as the room you use is meant for business only, you can use this loophole to pay less in taxes on your home business earnings.
Some other home business earning loopholes are as follows:
If you want to qualify for a tax deduction for your home business worth a thousand dollars and over for the average person, then according to Congress all you have to do is prove beyond reasonable doubt that you are running a home based business as a business and not as a hobby and that you are trying to make profits.
You can qualify for up to $5,000 or mores worth of tax deductions if you travel long distances to get to your regular job. To qualify for this deduction you have to be as home business as under IRS rules vehicle mileage traveling from one business location to another, may be deductible, if you meet the following criteria. This 'Two Business Location Rule' states that if your one business is based in your home and you have to travel to your 'other' job, the travel between these two places becomes 'tax-deductible business mileage'. This means that you can save a huge part of your home business earnings with this loophole.
You can also make all your medical expenses tax deductible by having a home based business. Regular tax payers who itemize their medical deductions can normally deduct only amounts over and above 7.5% of their adjusted gross income. However if you are a home business owner you can hire your spouse as an employee and offer him or her a 'Self-Insured Medical Reimbursement' plan. Under this plan all medical expenses not covered under health insurance coverage is reimbursed by the home business that you are employed by. This plan not only covers your spouse but your immediate family and children as well. Therefore you and your family can save a lot of money on procedures such as acupuncture, hearing aids, contacts/glasses, etc.
As a home business owner you can also deduct rent. To qualify for this deduction, if your home business uses 40% of your home for your business purposes then 40% of your rent is tax deductible as a business expense. This tax break is also applied to your water, gas, sewerage and electrical bills as well as routine repairs and maintenance.
