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IN THIS ISSUE
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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.
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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:
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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.
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** 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.
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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
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10. Contact Information
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Elena Fawkner, Editor
A Home-Based Business Online
Contact By Email
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