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IN THIS ISSUE 1. 2. 3. 4. 5. 7. 9.
1. Hello again and a warm welcome to all the new subscribers who have joined us since the last issue! This week's home business idea comes from Steve Wood of Wood Interactive, LLC who runs an online website design business course. He is making a special offer to AHBBO readers but the next course starts February 19 so you need to be quick. Just follow the link in Steve's bio at the end of segment 2. This week's article is tax-related since it's that time of year for so many of us. "Taxation 101: Business or Hobby" looks at the crucial difference for tax purposes between a business and a hobby and goes on to look at some of the more common home business deductions. As always, thanks for reading and I hope you enjoy this week's issue. Remember, this ezine is for YOU! If you have comments or suggestions for topics you would like to see addressed, or would just like to share your experiences with other subscribers, I want to hear from you! Please send comments, questions and stories to Contact By Email . 2. As a website designer, you would help small businesses and organizations in your area obtain and maintain a website. Most small businesses do not yet have a website, but are probably thinking about it now and most likely will be looking to create one in the very near future. There is a great need for website design professionals who can create effective and affordable websites and guide their clients in the right direction. Most small business owners don't know the first thing about getting their business online. That's where the home-based website designer comes in. A large part of the job is educating current and potential clients on the steps and procedures - and they are very thankful when it is explained to them in lay-man's terms. A computer degree or high technology skills and experience is not needed to get into this field. What is more important is that you have a good knowledge of your computer (you're not intimidated by new programs), a creative streak (not necessarily artistic, but you can see the difference between good and bad design, and you like the feeling of creating something from scratch), a strong motivation to run your own business, and the willingness and ability to learn. Website designers earn money by designing websites, and receive recurring payments from maintaining and updating websites, hosting websites, and providing consultation to clients. The business can be run on a part-time basis or full-time, depending on how hard you want to work and how much money you'd like to earn. ----- This Home-Based Business Idea of the Week was provided by Steve Wood, who owns and operates Wood Interactive, LLC and its hosting division Red Hot Hosting. Steve offers an online course for starting a home-based website design business. Course details can be found by visiting: ------ There are many more ideas like this at the AHBBO Home Business Ideas page at free home based business ideas with more being added all the time. 3. © 2013 Elena Fawkner For many of us it's tax time again. For others, tax time is just around the corner. So, how was business this year? Did you make a profit? If your business is very new, most likely you made a loss. Oh well, at least you can write it off, right? Well ... maybe. Whether you can write off your business losses depends on whether your business really is a business or a hobby. "Well, of course it's a business!", I hear you say. "I don't put myself through this for the fun of it!". In this article we look, first of all, at the things you need to be doing in your business to make it very clear to the IRS that you are, indeed, running a business and not merely indulging in a hobby. The reason this is so important is that although you have to declare and therefore pay tax on the income you make from a hobby, you can't write off your losses and may not even be able to deduct your expenses at all. Secondly, we'll take a look at some of the common business tax deductions you should be thinking about in the context of your business. Even if you didn't have your act together last year in terms of keeping records and receipts for all this stuff, at least you can get your house in order for when this year's tax return is due. HOBBY vs. BUSINESS The crucial distinction between a hobby and a business is whether you engage in the activity with a profit motive. Now, by profit motive, we don't mean that "gee, it's really great that I can make money doing something I love", we mean "I'm doing this with the intention of making a profit and if I can't make a profit doing this then I'll find something else to do that will make me a profit". The difference is one of motive. In the former, the motive for the activity was the doing - the enjoyment inherent in the activity itself. Making money was an incidental, albeit most welcome, benefit. In the latter, the motive for the activity was to make a profit. That's not to say that you can't enjoy what you choose to do to make that profit, it's just that your primary objective must be to make a profit such that if this venture is inherently unprofitable, you would presumably choose not to pursue it. With a hobby, on the other hand, even if the activity was inherently unprofitable, it is something you would choose to do anyway. OK, so much for your own subjective intentions. How does the IRS decide whether you truly have a profit motive? There are two ways it goes about it. The first is an objective test. Quite simply, the IRS will look at your tax returns for the last 5 years and if you made a profit during at least 3 of those years, you will satisfy the profit-motive test. If you don't meet this test or if your business is new and you haven't filed 5 tax returns, then the IRS will apply a subjective standard. In applying the subjective standard, the IRS auditor considers and weighs several factors, including: => Businesslike Manner of Carrying On Activity The IRS will look at how you carry on your activity. Do you keep a good set of books and records or do you chuck receipts into a battered shoebox? Do you have separate bank accounts for your business? Do you invest in advertising, marketing and promotion? => Time and Effort Invested Is your business a sideline or something you pursue more or less full-time? Obviously if you devote substantially all of your available time to the activity, the more likely it is that you have a profit motive since that is your primary source of income. Things can be trickier if you work full-time and your business is something you pursue on the side. Just be sure you can demonstrate an ability to devote substantial time and effort to your business. Unlike a hobby, a real business in which you have a profit motive demands time and effort. It's NOT something you just don't get around to this week because "things came up". With a hobby you can do that. With a business you can't. => Track Record of Profit-Making Ventures If you have a history of involvement in profit-making activities in the past, this will be relevant to your ability to make a profit in your current venture. Conversely, if you have no track record at all of involvement in profit-motivated pursuits, the IRS is going to be looking for evidence that you know what you're about and have sufficient experience and expertise to turn your activity into a profitable sideline. => Nature of Losses The nature of the losses you claim will also be a relevant consideration. If you're a start-up, substantial first year losses are to be expected. After that, however, you should be demonstrating a shift towards profitability. Your second year may still show a loss but it should be a smaller one that your first and your third should be smaller again than that, and so on. => Changes in Operations If you continue doing things the same way, day in day out even when they're clearly not working to make you a profit, that's a strong indication that you're engaging in a hobby and that you don't have a profit motive. On the other hand, if you can demonstrate changes in operations to attempt to fix what isn't working for you, this will lean towards a profit motive. => Profit Patterns The IRS will also be looking for profits in some years, even if losses occur in others. A pattern of small profits and large losses every year, year in, year out will raise suspicion. This is just a sampling of the types of factors the IRS will give weight to in adjudging whether your "business" is truly a business or a hobby. For more information, visit the IRS website at http://www.irs.gov. COMMON DEDUCTIONS OK, now that we all have healthy profit motives and are therefore running serious businesses here, let's finish up with a quick look at some of the common business deductions for home-based businesses: => Home office deduction. For a complete article on this deduction, read "Taxing Times ... The Home Office Deduction" at http://www.ahbbo/homeofficetax.html . => First year expense deduction. You can deduct up to $20,000 worth of equipment as a current expense during your first year of business with this deduction. Otherwise, you would have to deduct it over a period of years depending on the depreciation schedules for the assets concerned. => Auto expenses. If you use your car for business purposes, you can claim mileage or depreciation. The mileage method allows you to deduct the amount per mile the IRS allows for the particular year. The depreciation method allows you to take a depreciation deduction on the cost of your car and add to that all costs and expenses associated with running your car including maintenance. => Health insurance payments (proportion). => Business insurance premiums. => Contributions to retirement plans. => Continuing education expenses related to your business. => Gifts valued at up to $25 per person per year. => Internet and email services - ISP, webhosting etc.. => Interest on business credit. => Entertainment - 50% of ordinary and necessary business expenses for entertaining clients, employees, etc.. => Advertising, marketing and promotion expenses. => Membership dues for professional associations. => Subscription costs for professional and trade publications. => Local travel expenses e.g. taxis, trains etc.. => Business travel expenses - airfare, accommodation, meals, entertainment etc.. => Postage. => Furniture and equipment. => Business cards, stationery and office supplies. => Parking fees. => Bank fees on business accounts. For more detailed treatment of each of these deductions, as well as many others, visit the IRS website at http://www.irs.gov. Tax time is no fun for any of us but there is no reason to make it any harder than it has to be. If you keep putting off getting your tax return prepared because you just can't face the thought of going through that shoebox at the back of your closet to organize your receipts, make a vow that this is the last year you will do this to yourself. It's still early enough in the year to get your act together and by this time next year you could be focusing on your business rather than stressing out about something as unnecessary as tax-time hassles. ------ ** Reprinting of this article is welcome! ** This article may be freely reproduced provided that: (1) you use the autoresponder copy which contains a resource box; and (2) you leave the resource box intact. 4. TIP #1: How to find out anything about your computer. If you aren't totally satisfied with what you know about your Windows 98 computer, you can easily dig deeper with the System Information Utility. It's built right in. Select Start, Run, type msinfo32.exe and click OK. Or select Start, Programs, Accessories, System Tools, System Information. If a hardware problem is detected, the component categories will show color coded messages. If a device isn't working, you'll see a red message stating "This Device Has a Problem" followed by a description of the problem. This is a great place to start if you're experiencing anything out of the ordinary with your computer. TIP #2: How to find out if hardware devices have gone sour. Is your computer's hardware causing problems? Did you install a new sound card that won't work? Or something else? Check the Device Manager for details. Right click My Computer, and select Properties. Click the Device Manager tab. If you see a yellow exclamation mark next to any item, it has problems. You can uninstall that item by highlighting it and clicking the Remove button. When you reboot your computer, Windows will try and locate the appropriate drivers for the device. You may need to have your Windows CD available, or the proprietary disks for that particular hardware. Worst case scenario: the hardware still doesn't work after you've tried this. You may need to take you computer in to a techie. ------ Tips by Tom Glander and Joe Robson of The Newbie Club. The best Newbie Site ever to hit the Web. 5. Sally Bunston writes: "Hello Elena, "I've enjoyed quilting as a useful hobby for almost twenty years and finally opened "Aunt Sally's Custom Quilts" two years ago...and took it to the 'Net in August of 2013. It was the best move I ever made! I'm finally making a living at something I enjoy while working from home. "Initially, I offered custom machine quilting for other quilters. The local business has been great, but I have lots of quilts literally hanging around which I quilted to advertise my stitching abilities. The only logical option for selling these works of art was taking it to the Internet. So I found a local web designer who wanted a wildlife quilt about as bad as I wanted a website....and I was in business. Well, it was a little more intense than that..I hadn't touched a computer in twelve years! Let's just say I know a WHOLE lot more now about computers. "In the last few months I have worked on quilts from New York and California and have sold several in other states. Now that I'm so handy with a computer I am exploring Desktop Publishing as a means to print some of my original quilt patterns. Customers have been asking and I think I should listen." Sally Bunston Aunt Sally's Custom Quilts Charles City, IA USA Creating Tomorrow's Heirlooms Today ------ ============================================================
Elena Fawkner, Editor
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