Home Business Ideas

Lots of people talk about the tax benefits of having your own home business — and it is all true. Yes, you can deduct that vacation to Puerta Vallarta if you can show that it is a business trip — and what trip isn’t a business trip if you are working all the time? Wink, wink, nod, nod.

Sorry if this post has a U.S. bias, but that is the only tax system I am familiar with — you will have to judge if any of this applies to you if you live in another country.

Tax benefits go way beyond your working-vacation trip. Many of the things you spend money on at home become deductible, from your computer to that handy plastic-sealer you use for CDs but that works great on food bags too. The IRS is not going to come into your house to see how you use that device, but their rules say you can only take the business-use proportion on your tax form.

Which brings us to the tricky question of ethics and tax reporting. Tax laws were written to be pro-business and hit the employed working-man hardest. Is it unethical to use those laws to their fullest extent? That is a personal decision you must make. Any tax preparer will tell you that there is a lot of ‘wiggle room’ in interpreting tax laws. Are there any good reasons to err on the side of paying-more when interpreting those laws? Probably not. Usually, the worst penalty you will get is having to pay the taxes you avoided (plus interest) — but you had the use of that money in the mean-time, and if used wisely have earned at least the going interest rate on them. In most cases though, the IRS will not challenge your interpretation, there are bigger fish to go after.

Some of the things that will put you in that ‘big fish’ category that you should avoid would be:

• Having a high income and not filing any tax return at all.
• Having substantial business income but showing a net loss year after year.
• Not reporting a substantial portion of your income — how substantial depends on too many factors to go into here…
• Basically, any business return that is so far off the norm that it seems implausible.

So by all means, start a home business for the tax benefits — if nothing else. Be sure to work toward profitability, of course (you have to have an income to deduct against!), and let your conscious (and qualified tax adviser) decide how beneficial the results should be on your tax return.