7 Fabrications That Are Causing Millions to Overpay Their Taxes
Distortions and just plain falsehoods are being told about income taxes. Believing them could be costing thousands of tax dollars!
Misconception #1: My professional tax preparer knows everything about taxes so I don’t have to.
Truth: Professional Accountants/CPA’s and Tax Preparers are not consistently informed about ALL tax laws. These people know personal income tax laws and know how to apply them.
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.
Even excellent tax people are not trained in tax reduction strategies. As a home-business owner you should know what deductions you are allowed and present the figures to your tax preparer.
Myth #2: You must “itemize” in order to take Home-Based Business expenses.
Truth: All taxpayers have the opportunity to itemize if it is to their advantage. Whether you “itemize” or not has NO bearing on your Business. 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).
Myth #3: You’re not making a profit so there is no advantage to filing business income taxes.
Truth: There are many tax advantages to filing a home business tax return and especially so if you are not making a profit. If you work in addition to having a home-based business in is in your best interest 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. Expertise of the taxpayer or his/her advisers. That would mean your expertise in Internet Marketing or those who advise you. If you’re learning and actively applying what you learn to your Internet Marketing activities and have a good “handle” on this 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. Is the Primary Purpose of your activity to Produce a Profit, or to Produce Tax Write-offs You are not required to actually produce a profit in order to qualify for home-business tax deductions — just to show that you have the intent to produce a 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: That’s a generalization. Yes, the government would like to see you make a profit within 5 years but you are not penalized for not doing so. If you are following the above 4 rules and conducting yourself as a business you have nothing to worry about. You are a business and some businesses are not profitable for a number of years.
Myth #6: Learning how to reduce you taxes is hard and complicated.
Truth: Average Small Business Owners have plenty of tax reduction strategies at their disposal. You just have to know what they are and how to use them.
Myth #7: Accounting and tax documentation for the Home-Business is not for the do-it-yourself-er.
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.
