As tax time quickly approaches, it got me thinking about the new comer's that want to build an Internet business; desiring to have more than just working to make some other company successful, but not sure where to start, and worried about how profitable that first year will be.
Let me try and ease your worries a bit. As the Webmistress of my own site and someone who has worked in this business for more than three years, I can tell you that there are no guarantees as to how much you will make, but I can guaranty you that, *because it is your own business* even if the first year isn't as profitable as you thought it would be, you have just successfully created for yourself what is known as a tax shelter. Even if you just start a small business "after hours," you will be able to open an IRA in addition to the 401(k) plan you contribute to at work already. If you run your Web business out of your home, you may also be able to write off some of your utilities, insurance, home repairs, depreciation, and anything that you may have bought for your business, such as cameras, computers, Internet connection costs, business trips, etc.
Even if the first year isn't as profitable as you thought it would be, you have just successfully created for yourself what is known as a tax shelter.
Accelerating Your Business Purchases
Section 179 of the Internal Revenue Code allows you to deduct up to $24,000 of new equipment in 2001 instead of taking normal depreciation on it. Instead of waiting until next year to purchase office supplies, it may be worth accelerating into 2001 some equipment purchases that you have intended for next year. This is something important to consider if the purchase is large, and you really don't want to wait out another 12 months for the tax deductions on it.
Remember to always keep receipts for your major purchases, and scan or make photocopies of the most important receipts. Make backup copies of computer records and duplicates of photos and videotapes. Store these copies in a protected off-site location, such as a safe deposit box, for protection purposes and proof in case you are audited.
Take Tax and Financial Precautions for Disasters
You may be able to take a tax deduction for an uninsured loss, but it won't totally make up for your financial loss. While it's impossible to insure yourself against every contingency, evaluate your policies periodically to determine whether your important business needs are covered. For example, policies that provide for "fair market value" coverage may not pay you nearly enough to replace your damaged, destroyed, or stolen property.
Family for Hire
Another thing you might consider is to hire family members to work in your business such as working as your secretary, designer, model, etc. therefore taking advantage of the lower tax rates and deductions as they are now employed with your company. It is important to remember though that the pay must be "reasonable" for the work performed. Just because they are family does not mean you can pay them a thousand dollars a day for answering the phones, and because they're family, chances are that Uncle Sam's going to keep a closer eye on things:
Start by Investing in Your Own Business
When you get your tax savings back from those home business deductions, always take the money and put it back into your business. Create a business account and only draw off of that account for your business expenses, then your web business will start building off of itself.
So why not take the chance and have that business you've always dreamed of? With the tax deductions allowed for your business, the only way you can fail is by failing to begin. Remember, many of those intimidating Web businesses that are now huge corporations may have started the same way. In the Web business, to profit, it matters not that you finish first, but that you stay the course and use all advantages available in order to finish successfully.
Links to Some Useful Tax Resources
The following are a few helpful resources that will make your tax preparations easier:
Food For Thought ~ "The sky is the limit to how many businesses / tax shelters you can create and successfully profit from on the Internet." The space is endless, so the more Web sites you have, the more you will profit. When it comes to creating your dreams on the World Wide Web, never think small! ~ Ayrora