7 Fabrications That Are Causing Millions To Overpay Their Taxes

Misrepresentations to Small Home-Based Businesses That Are Causing Millions to Overpay Their Taxes!

Untruth #1: Tax professionals are trained to know everything about taxes so I don’t need to know about them.

Truth: It is impossible for anyone to know ALL the tax rules. Updates to CPA’s/Accountants and Tax Preparers usually only include laws that pertain to PERSONAL income taxes.

Thousands of excellent tax professionals are doing a good job and maybe yours is looking for ways to reduce your taxes. But the greatest majority only prepare your tax return. They know how to fill out the forms with their eyes closed.

A good tax preparer is not trained in tax reduction strategies. The only way you are assured to get the tax deductions you are entitled to, as a Home-Based Business Owner, is to become informed yourself.

Myth #2: You must “itemize” in order to take Home-Based Business expenses.

Truth: Many people misunderstand the terminology here. When you “itemize” your income tax you file Form A&B and take such things as medical, home mortgage interest etc. You will only “itemize” if the total of Form A is over the standard deduction (for 2008 taxes$5,450 single, $10,900 married). Some people call this filing “long form.” All taxpayers have the opportunity to itemize if it is to their advantage. Whether you “itemize” or not has NO bearing on your Business.

Misconception #3: There is no advantage to filing business tax forms if you are not making a profit.

Truth: This is so not true! There are many tax advantages to filing a Home-Business tax return and especially so if you are not making a profit. If you also work a job, be it part-time or full time, in addition to your Home-Based business it is especially beneficial to you to file a business tax return. Expenses incurred in your business can be taken against your job income thus reducing your taxable dollar, which decreases your tax liability.

Myth #4: Because you work a full-time job your Internet Marketing Business is just a hobby.

Truth: The rules clearly state you have a business if you meet 8 rules. Four of the most important rules to meet are:

1. The skill of the taxpayer or his/her advisers. Assuming you an Internet marketer and you are actively learning and applying what you are learning to home-based businesses and understand the principals…you qualify.

2. Time and Effort the Taxpayer puts into running the business. How much time and effort is enough? The United States Federal Tax Court has ruled that 45 minutes a day, 4 to 5 days a week qualifies.

3. The way you carry on your business activity. If you conduct your business mostly on the telephone, over the Internet and in-home presentations you’ll do fine. On the other hand if you do most of your business on the golf course, during lunch or at the bar you have a hobby not a business.

4. If your primary objective is to produce a profit you qualify as a business. On the other hand if your primary objective is to produce tax write offs the IRS will frown on that. You don’t have to actually yield a profit in order to qualify. Just show that you have the intent to profit.

If you meet those 4 standards your business would be classified as a business not a hobby.

Untruth #5: If you don’t make a profit within 5 years you won’t be considered a business and can’t file home business taxes.

Truth: Generally, the IRS does want you to produce a profit but the 5 year rule will not apply if you are following the 4 rules above and act like you are in business to produce a profit. Some businesses are not profitable for a number of years

Misconception #6: It’s hard to learn how to reduce your taxes.

Truth: Once you learn what deductions are allowed you will know what figures your Tax Preparer/Accountant needs and you can configure your accounting accordingly.

Misconception #7: Tax documentation and accounting are not for a home business is not for the average person.

Truth: Documentation for the government is very easy if you use a pocket calendar and keep your receipts. In just 5-10 minutes a day you can have records that will withstand any government scrutiny.

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