| Starting and operating your own home based business | | | | purposes; depreciation is the accounting term for this |
| is | | | | tax deduction.The Canadian government also allows |
| the ultimate tax shelter.Although this article has been | | | | as a deduction, |
| written from a Canadian | | | | fifty percent of your business related entertainment |
| income tax perspective, the principles should be | | | | expenses.Also tax-deductible are business related |
| practical in other tax jurisdictions.1. Non-Deductible | | | | telephone |
| Personal Living ExpensesAll of us have expenses that | | | | expenses, Internet access, office supplies, travel, |
| we incur in everyday | | | | books, memberships, and a host of other |
| living.Either you rent an apartment or house or you | | | | expenditures.3. Income Splitting with Your Home Based |
| own your | | | | BusinessIf you have a high paying job, you will pay |
| residence. Utilities, insurance, rent, mortgage | | | | higher |
| interest, property taxes, and maintenance and repairs | | | | taxes because the rates of tax increase as your |
| are typical costs of operating your home.Likely, you | | | | income |
| have a vehicle which also consumes large | | | | does.With your own business, you can pay |
| amounts of cash.Add to this, dining out, entertainment, | | | | reasonable wages to |
| gifts, | | | | your spouse and children. In this way, you can legally |
| alcoholic beverages, office supplies, telephone and | | | | divert income taxed at your higher rate to your family |
| many other expenditures, and you have a significant | | | | members that are in a lower tax bracket.This tax |
| cash outflow.In most cases, as an employee, retired | | | | saving technique is called income splitting. |
| person, | | | | It is another good reason why your own home based |
| investor, student, or homemaker, few of these | | | | business is the ultimate tax shelter.4. Even a |
| expenses are tax-deductible to you.This means that | | | | Part-Time Home Based Business WorksEven if you |
| you must earn a considerable income, | | | | have a full-time job, running a part-time |
| pay your income taxes first, and then use what is | | | | business can be advantageous.Of course, you must |
| left to pay all your expenses.Some employees may | | | | actually run a real, moneymaking |
| be able to write-off some of | | | | business. Any attempts to write unprofitable hobbies |
| their employment related expenses, if such are | | | | off will ultimately fail with the taxation authorities.If you |
| required by their contract of employment. However, | | | | earned eight thousand dollars during the year |
| even in this situation, the tax deductions are very | | | | from your part-time business and were able to |
| limited.2. Your Own Home Based Business Means | | | | deduct |
| Tax DeductionsNow consider the situation where you | | | | eight thousand dollars in car expenses, home office |
| decide to start | | | | expenses, entertainment costs, office supplies, and |
| your own home based business.Suddenly, many of | | | | other business related expenditures, you would have |
| your everyday expenses are now being | | | | a |
| used for business purposes and are now | | | | net business income of nil. You would pay no tax on |
| tax-deductible.If you use one quarter of your home | | | | this additional income.Don`t miss this important point! |
| exclusively for | | | | Although these tax |
| business use, you will be able to deduct (or write-off) | | | | deductions are actual, legitimate business expenses, |
| one quarter of all related occupancy costs. These | | | | these are expenditures you would probably have |
| expenses may include maintenance and repairs (that | | | | made |
| are | | | | anyway, whether you had a business or not.Thus, by |
| not capital in nature), rent, mortgage interest, house | | | | rearranging your affairs to start and operate |
| or apartment insurance, power, heat, water, and | | | | a home based business, you have been able to |
| property taxes.As well, your vehicle expenses used | | | | convert |
| for business | | | | non-deductible personal expenditures into legally |
| purposes are another tax write-off. If you use your | | | | deductible business expenses. You have successfully |
| car ninety percent for business purposes, you can | | | | sheltered your income from tax and have split your |
| deduct ninety percent of your vehicle insurance, gas | | | | income with family members in lower tax |
| and oil, maintenance and repairs, car washes, license | | | | brackets.Yes, indeed, your home based business has |
| and registration, auto club, loan interest (within | | | | become |
| certain limits), and other costs from your income. | | | | your ultimate tax shelter.RESOURCE BOX:J. Stephen |
| You may also write-off one hundred percent of your | | | | Pope, President of Pope Consulting Inc., |
| business related parking. Capital Cost Allownance | | | | has been helping |
| (C.C.A.) on your vehicle is also allowed for income tax | | | | clients to earn maximum business profits for over |
| | | | twenty-five years. |