Owning a home-based business is a great way to bring in
extra money and to catch some tax breaks as well. Home business-owners are able
to deduct a great many business expenses from their taxes.
Unfortunately, though, there are some people out there who
try to avoid paying taxes altogether through tax avoidance schemes.
Furthermore, there are people who sell “tax toolkits” or
“tax toolboxes,” which are designed to help you set up a fake business and make
illegitimate deductions. Whatever you do, don’t get involved in these types of
schemes as they are illegal and can cause you serious problems if and when
you’re discovered.
Your Business Must be
Fully Legitimate
If you’re going to set up a home business, make sure you do
so the right way.
You are going to have a hard time qualifying for any legal
deductions if your business is not legitimately set up. It should have a clear
purpose and a clear way to make a profit.
To ensure that your business is set up correctly, make sure
you:
·
Choose a legitimate business type, such as a
sole proprietorship or a limited liability company (LLC)
·
Get an official employer identification number
(EIN)
·
Open and maintain a business-only checking
account
·
Keep business and personal expenses completely
separate
Don’t Take Bogus
Deductions
Setting up your business properly will help you to qualify
for many deductions, especially if you maintain a home office.
However, don’t fall into the temptation of taking extra or
“bogus” deductions. These are an easy way to get flagged and investigated by
the IRS, and, as a result, you could find yourself in a world of trouble.
Some “deductions” you’ll want to avoid include:
·
Deducting any payments you make to your own
children, even for legitimate services they provide
·
Deducting personal home purchases as business
expenses
·
Deducting a lot of vehicle expenses as business
expenses
·
Deducting travel, meals, and entertainment for
others who are not part of your business
As you can see, honesty is key in dealing with the IRS and
not getting your home business into trouble. Follow these tips, get help from a
professional when needed, and, above all else, don’t try to cheat the IRS
because you won’t win!