Many work at home freelance professionals, small online business, and ecommerce website owners do not understand how the government views their work at home venture. Small business owners have a hard time accepting the fact that an online business opportunity is a real business, which requires a business license, and the revue to be claimed by the national taxation service.
Most people start a work at home business to create a passive stream of income. The fact that the income is passive, or the fact that they only work a few hours a week, often lulls them into a sense of complacency. Even a person who writes blogs for a Pay Per Post company, and earns $20 - $50 a week, is a self-employed business owner and must follow the same rules as the local grocery store, car dealership, and daycare center.
This is not always a bad thing. Claiming income has several benefits. There are several forms of revenue, one being an income tax refund. If a work at home freelance blog manager earns $5000 a year working part time, they can often claim more tax deductions than needed, resulting in a return. If the business owner earns a $500 return then in business terms, this is another $500 of revenue.
One of the biggest mistakes is not following government business and income tax regulations. Most work at home business owners fail to claim more than 50% of their tax deductions from a percentage of their mortgage interest and electricity bill, to a percentage of their lawn mowing and housecleaning expenses.
The definition of a real business is one that earns revenue. There is no limit on the amount of revenue needed to meet the criteria of a business, but there are limits that control how much can be claimed.
There is an old story about a man who thought he could beat the system:
An average family man who worked in a factory learned from a friend that a home based business opened up dozens of opportunities for the business owner to reduce their tax money. Encouraged by the friend's large tax refund, the man ran out and purchased a German Shepherd Dog.
He built a single dog kennel out back and was 'in business.' He put filers up around town advertising that the dog was for stud, and that he would board people's dogs when they went on vacation. The requests for stud service were few-and-far-between, and there really was no room to board a dog.
The man claimed all the dog's expenses. He measured the yard space taken up by the dog kennel and divided it into the square footage, coming up with the percentage of the home used by the business. He deducted that percentage of every bill and household cleaning product from the bottle of Windex under the kitchen sink, to the house's new roof.
We all know how this ended. The man ended up charged with fraud and ended up in jail. This story could have ended happier, especially if the man trusted the local business development office at city hall, instead of his friend's word.
Here is a true story that happened this summer:
A freelance writer worked a few hours each weekend for two years. He only made about $300 - $500 a month, just enough to take the stress from life. Unfortunately, his expenditures and claimed income did not match raising 'red flags' at the revenue office.
Within a few days that man had a yellow envelope on his desk, and a shocked look on his face.
Conclusion:
Take the time to learn how much your type of business can earn. Even book royalties and money made from PayPerClick programs can turn a passive income stream into a 'real' business.
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