| By :
Kelly Monaghan
People who have never had their own business are sometimes startled by the tax benefits - yes, the benefits - they enjoy as a home-based businessperson. In general, the government likes to encourage business development and since it knows that it takes money to make money, the tax laws allow you to deduct certain expenses from your gross income before figuring how much tax you owe on what's left (your "adjusted gross income"). Some deductions are fairly obvious. Office supplies, that new computer or fax machine. All these are costs of doing business and are deductible. Some other perfectly legitimate deductions are often not so obvious to newcomers. Here are some examples that apply to home-based travel agents (an area in which I have experience), but they may apply to your business, too. Let's start with travel, the whole reason most people become home-based travel agents in the first place. If you become a travel agent, much, if not all, of your travel from now on will be a tax-deductible expense. It just has to have a valid business purpose. If you specialize in tours to Spain, it's pretty easy to justify any trip to Spain as a valid business trip. After all, you need to keep up with the scene, meet travel suppliers, inspect new hotels, and on and on. If you take a cruise to learn more about the cruise business, that is a valid business expense. What was once a "luxury" now becomes a tax-deduction windfall! Another overlooked "vehicle" for tax deductions is the car you already own. Every time you use it for a valid business reason, you can take a deduction. How? You can deduct a certain government-approved amount per mile driven or (and this is the preferred method) deduct a percentage of total car costs based on the total number of business-miles driven each year. The second method invariably yields the larger deduction. If you live in Sacramento, CA, and drive into San Francisco to attend a supplier seminar, the cost of getting there (including tolls) is tax deductible. Your lunch at that posh new restaurant might even be deductible (ask your accountant)! And if you take a few hours to shop, that's okay, too. If you join a professional association in your industry (there are several excellent ones that travel agents can join), you can deduct the cost of airfare, hotels, even meals, when you attend one of their conferences. Even if you drive a few miles to drop off travel documents (or anything else) at a client's home, that "travel" is deductible. Take it from me, keeping track of this seemingly small thing can pay off big come tax time. Those short trips add up. Many people borrow money to start a business. If you do it right (that is, you follow a few simple rules to make it a "formal" loan) you can deduct any interest you pay. You can even borrow from your children! (It's not as bad as it sounds and if you do it right it's a win-win situation all around.) There are two keys to maximizing your tax advantages as a home- based travel agent or in any other home-based business: * Keep impeccable records and ... * Follow the advice of a trusted accountant (as opposed to me). One of the biggest hassles in deducting travel expenses, for example, comes when you and your spouse (who may not be in your business) travel together. In this case, you really have to bend over backwards to keep good records, since any expenses your spouse incurs are not deductible. Your tax accountant can walk you through the intricacies on this one. Of course, there's an easy solution to that problem. Your spouse can join you in your business! Now I realize that may not be possible in all situations, but if you are are married and casting around for a home-based business, try to find one where both of you can legitimately participate in the business. Being a travel agent lends itself to that sort of arrangement and I know of many successful travel agent couples. But it might work well for other businesses as well. Remember, the family that works together, travels and deducts together.
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