How to Escape the Rat Race

by Sherry Peel Jackson

  · Get your family involved with the business.

  · Work for someone in that field first.

  · Complete your written business plan now.

  · Prepare cash flow projections.

  · Take classes on your shortcomings, such as accounting or operating on the Internet.

  · Start small to gain credentials and experience.

  · Consider moonlighting without quitting your regular job.

  · Always remember to operate with integrity.

  · Don’t rule out a hobby as a potential home- based business.

  · Don’t quit your job until all preparations are complete.

  · Don’t compete with your employer.

  · Don’t conduct business on your employer’s time.

  · Don’t overlook a small, humble beginning.

  · Don’t ignore zoning, licensing, and permit requirements.

  · Don’t rush to get started; use a start-up checklist.

  · Don’t incur unreasonable liabilities when starting your business.

  · Don’t neglect the importance of customer service.

  · Internet-based businesses are growing and are a great way to start a home-based business.

  · Multi-level marketing home-based businesses are fine as long as you have done the proper research and have the time to work them. • Don’t think it’s too late to start!

  The Ideal Home-Based Business

  I have given you the basics about home-based businesses and shown you that this is a great method to increase income and thrive. Now let me share some secrets to selecting home-based businesses.

  I took great pains to find home-based businesses that fit most of the categories I will mention below, and now my businesses continue to grow no matter what the overall economy does. I repeat: it will require extra time for you to start a business. You need to make sure that you are balancing your family life with any business that you start. You also need to make sure that you have the skills to operate the business that you select.

  There is no more embarrassing situation than someone who starts a business without the proper knowledge and then ends up out of business within a year or less. However, this happens repeatedly as frustrated workers impulsively quit their jobs to start businesses that they know little or nothing about. You can avoid this scenario by carefully studying your options for starting a business, the amount it will cost to get started, the amount it will cost to capitalize the business for at least six months, and the amount of time and energy you, as opposed to your work force, will have to lend to the business. Now you are ready to select the ideal home-based business.

  The ideal home-based business:

  · Has a digital product or service with wide appeal

  · Requires no technical knowledge

  · Has a small time commitment

  · Has a generous compensation plan

  · Has an automated marketing system

  · Has leverage via word-of-mouth marketing

  · Requires no special training or large financial outlay

  · Provides mentorship by skilled and successful professionals

  · Allows you to quickly generate at least $3,000 or more each month

  · Offers the potential of earning over $10,000 per month in one year or less

  · Offers products and/or services that make life changing contributions to people

  · Can operate from anywhere with a computer, phone, and Internet access

  · Offers unique products for which there is a strong demand

  · Will challenge you to grow beyond your comfort zone, build your knowledge base, and enhance your relationship skills

  · Empowers you to embrace a new paradigm about life

  · Has a powerful customer acquisition strategy

  · Is fully portable and available internationally

  · Is membership-based with recurring income

  · Has a unique, utterly compelling sales proposition

  · Anyone can do it, young or old, experienced or not

  · Is affordable, with low running/monthly costs

  · Is fun to do, something that gets you excited

  · Has the potential to deliver true financial freedom

  · Has the ‘X’ Factor, so it stands out from the crowd

  · Involves some type of Internet Marketing

  When you select your home-based business, please review the above list as a guide to pick a winner!

  What About Taxes and Home-Based Businesses?

  We’ve talked a lot about home-based businesses. We have learned that a home-based business can dramatically increase your income by bringing in more revenue. We’ve also learned various types of home-based business and the criteria for selecting a home-based business. However, do you realize that home-based businesses can have a positive effect on taxes?

  I’ve been in the financial arena for over three decades and one thing that I do know is that many small businesses are not taking advantage of the deductions that congress allows. As a result, these businesses were paying much more in taxes than is necessary.

  I was crowned “The Deduction Queen” by many of my clients when I used to prepare tax returns because I saved them thousands of dollars every year by utilizing the tax laws to their advantage. Now I will share with you methods to reduce taxes by properly utilizing home-based business deductions.

  The difference between a person that has a home-based business and one that doesn’t is simple; the person with the business gets to deduct expenses that the other person also pays but can’t deduct. For example, a person with a home-based business can deduct a portion of their telephone bill, Internet service, travel expenses, office supplies and even mileage. The person that sits at home in front of the television after work does not get to deduct these same expenses even though they are also paying them monthly.

  ABOUT THE INTERNAL REVENUE SERVICE

  From My Experience:

  The IRS has good and bad employees. However, their main purpose is to extract money from you. Even though employees are not always directly rewarded for assessing and/or collecting large amounts of taxes, those who do are promoted faster and receive annual cash awards.

  If an audit is conducted in which the business owner (you) has only a few or no records at all, the IRS auditor (one that sits in their office and makes you bring in records) or the IRS agent (one who comes to your home/office) will have a “field day”. They are able to disallow each and every expense that you deducted on your tax return for which you have no documentation. Per the Internal Revenue Service, you have to substantiate everything that you deduct.

  Those business owners that have excellent records during an audit usually escape with a “no change” report.

  The bottom line is that if you own or plan on starting a home-based business you should keep very good business documentation. You don’t have to keep sophisticated records, but keep all receipts, invoices, canceled checks and other records that will prove your expenses in an IRS audit.

  In this chapter you will learn what to keep, how long to keep it, how and why to keep it, and what is acceptable to the IRS. You will also learn tax saving strategies that wealthy people pay accountants and lawyers thousands of dollars for. The bottom line is that you will learn how to keep more of what you earn in your business and give the IRS the very minimum.

  Let’s move on and talk about the Schedule C: The Sole Proprietor’s Profit or Loss from Business form.

  SCHEDULE C: PROFIT OR LOSS FROM BUSINESS

  Exhibit A is a 2015 copy of the Schedule C. This is the form on which you will report your small business earnings and expenses to the Internal Revenue Service unless you incorporate. We will go over this form section by section and I will give you tax tips along the way.

  PART I: INCOME

  The income line is where you will report all of your small business income. This includes payments for services, checks from clients and money collected from the sale of items that y
ou had in your possession (this is called your inventory). Each time you sell products you should record this information in a log and a receipt book. After adding the sales tax you should give the customer one copy of the invoice and you keep a copy. If your products or services are sold electronically this process is already done and recorded in your database. These invoices will be added up at the end of the year and the sum will be your inventory sales. For example: if you receive $4,250 in checks from clients for services, and your receipt book(s) for the sale of products total up to $1,250, then you will insert $5,500 on the income line.

  Returns and Allowances

  Whenever you have to return funds to a customer you include that sum on the returns and allowances line. This will probably rarely be the case, because you have quality products and services ☺.

  Cost of Goods Sold

  Cost of goods sold refers to the cost of products that you sell. For example, you sell widgets and you pay $12.96 for each widget. Your cost of goods sold is $12.96 times the number of widgets you sold. Any widgets left over at the end of the year are included as your ending inventory. These inventory widgets are not deductible until you sell them the next year.

  PART II: EXPENSES

  Now we will discuss expenses. Internal Revenue Code Section 162 gives small businesses the right to deduct “ordinary and necessary businesses expenses.” Almost every business expense can be classified as ordinary and necessary as long as you execute proper planning to receive the deduction.

  For example the use of your cell phone to do business is ordinary and necessary business use, especially if you are away from a land line.

  Advertising Expenses

  This category is for items including your company business cards, your company web page, your flyers, newspaper ads and radio announcements. Now days people purchase leads for their Internet businesses. Keep all invoices, a copy of each flyer, radio airtime confirmation and newspaper ad in a file marked “Advertising.”

  Bad Debts

  Because most home based businesses operate on a cash basis, (no accounts receivable or accounts payable on your personal tax returns), bad debts do not apply. If you have to reimburse someone for product, that amount is detailed on line 2 of the Schedule C: Returns and Allowances.

  Car and Truck Expenses

  This expense can yield thousands of dollars in tax deductions for your small business. The IRS allows you to take either actual expenses or the standard mileage rate. If you use actual expenses you will need to keep gas receipts, credit card statements, car repair invoices and your odometer readings. Most people prefer the standard mileage rate because you need only to keep your odometer readings. For every mile you drive you are allowed a specified deduction. For 2015 the rate is 57¢ per mile. This means that if you are not actively working your home-based business, when you drive you might as well stop every two miles and throw one dollar out of the window!

  The IRS says that if you have a home-business and you travel from your home office to a business stop (the bank, the gas station, the post office, a client…) this mileage is deductible if your home actually qualifies as a home business. You need to make sure that your home qualifies by setting up an office in your home. It may be a good idea to have your inventory displayed in that office if you sell a product.

  The next thing you need to do is get a mileage log. Instead of going out to buy an expensive log, just use one of your extra check registers or a calendar. You need to log the following each day:

  · Destinations

  · Business Purpose

  · Beginning Odometer Reading

  · Ending Odometer Reading

  · Total Business miles

  In many automobiles, there is a little dial that will set your miles on zero each day and this will help you determine your daily business miles. The IRS would also like you to know your beginning of the year odometer reading and your end of the year odometer reading. These numbers will help determine the percentage of business versus personal usage of the automobile.

  Commuting miles are not deductible. Commuting miles are the miles you drive from your home office to the very first stop of the business day. For example, if you leave your home office and go to a client’s home 25 miles away it’s considered commuting miles. Therefore, you want to make sure your first business stop and your last business stop of the day are strategically planned. For example, instead of leaving home and going straight to the client’s office across town, make your first stop your Post Office box, which is only

  Five miles away from your home office. That way, your drive from the Post Office to the client’s office (at least twenty miles) is fully deductible. If you leave the client’s office and go straight home then all of that mileage is considered commuting miles. Thus, you may want to make another business related stop (gas station, bank…) near your home office before proceeding home. If your bank is near your home office, stop there on the way home, or at the ATM if it’s after hours. Now your mileage from the bank to your home office (maybe five miles) is the non-deductible commuting miles. Millions of people don’t know this and when they are audited they will lose most of their mileage expense deduction because the auditor will change the mileage to non-deductible commuting miles if this strategy isn’t followed.

  Remember that even if you choose to use the standard mileage rate, you still want to keep track of amounts spent for gas, maintenance and other auto expenses. However, credit card receipts and invoices stored in a file will suffice for this purpose.

  Parking and toll fees are separately deductible when you use the standard mileage rate.

  Therefore, keep parking and toll receipts in a folder by themselves.

  We will discuss leased vehicles in the “Rent or Lease” section.

  Commissions & Fees

  Commissions and fees are paid to individuals for helping you on a contractual basis. Unlike employees, business owners who pay people on commission are asked by the IRS to complete a form 1099 Miscellaneous Income and mail it to the individual and to the Internal Revenue Service. This exercise gives the individual a record of how much you paid them during the year, and it lets the IRS know that the individual had income during the year. For example: If you pay a neighbor for referring other neighbors to the business, the amounts paid to the first neighbor are deductible as commissions. In this case, you must fill out and mail a 1099 Miscellaneous Income to the neighbor and to the IRS, but only if you paid the neighbor $600 or more. If you paid him/her under $600 then you need only keep a copy of the checks and invoices, which you will create at the time of payment.

  Depreciation

  Depletion is used for petroleum and similar products and does not apply to ordinary businesses. However depreciation is the ability to make wear and tear deductions on equipment, machinery and other fixed assets that we purchase. This topic can get very complicated, with all of the different methods of depreciation. Therefore, I will only give you the basics.

  If you use the actual costs for your automobile expenses as discussed in an earlier section, then you may depreciate your automobile over a 5-year period. You will be limited in the amount of depreciation that you are allowed if you have a “luxury” automobile, per the IRS.

  If you purchase computers, furniture, equipment and similar items during the year and you use them 100% for business purposes, you are allowed to deduct 100% of the cost of these items, up to $25,000 in the current year. You must use these items 100% for business per Internal Revenue Code Section 179. If you use the items less than 100% in the business you may deduct only the business use percentage. You need to keep written records of your personal verses business use of these items to justify your deduction.

  If you already owned real property (real estate) and converted it to business use when you started your business, you may depreciate it over a 5-year period at the lower of cost or current value. However, when you sell the property you will have to deduct that depreciation from the original cost of the p
roperty, giving you a larger gain on which to pay taxes. For more on depreciation and depreciation methods you can visit the IRS website.

  Employee Benefit Programs

  Most home-based businesses do not have employees and this section will not apply. However, remember that if you hire employees and you remain a Schedule C business instead of incorporating you can expense some health care and other benefits paid to them, in addition to their salary. This is the case even if the employees are family members.

  Insurance

  You may have insurance on your business in your home. This is an additional waiver that you purchase from your homeowners insurance company for your business equipment. You may also deduct the portion of your regular home insurance that applies to the office in your home. We will discuss “expenses for business use of your home” in a later section.

  Interest

  You may obtain a business loan and deduct the interest for that loan in this section. You may also deduct a portion of your mortgage interest here. When deducting mortgage interest, you must determine the percentage of space used for your business and deduct only that amount. We will discuss “expenses for business use of your home” in a later section.

  Legal & Professional Services

  In this section you can deduct tax return preparation fees, legal research done for your business, professional word processing and other services. Make sure that you obtain invoices from the individuals rendering these services.