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3 Things You Probably Didn’t Know About Your Taxes…

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There are myths that can keep you from receiving thousands of dollars in tax write offs

“A smart man only believes half of what he hears, a wise man knows which half.”~Jeff Cooper

Myths can definitely hinder you from taking advantage of great opportunities. Taking financial advice from Uncle Ray Ray who don’t know anything about finance and business can definitely take cash out of your pocket.

I’m not saying that I’m this financial guru who has the mystical golden scepter from the Wizard of Cash Flow Land, but I like to do my research in what I’m getting into.

In the previous blog post Do You Want To Be Wealthy? Learn This Rule…” I wrote down a partial list of what you can write off from your taxes as a home business owner. But some people are still skeptical about this. This is why “It’s How Much You Keep That Counts: Not How Much You Make” by Ronald R. Mueller is highly recommended.

A lot of home business owners look forward to tax season. Why? Because the government pays us to help keep the economy going in tax write offs.

Without businesses, there would be no jobs, no commerce, no economy, no nothing. So this is a great way to get compensated for what we do.

But there are those, rather they have a home business or don’t, still listen to Uncle Ray Ray’s advice on home businesses and taxes.

I was talking to a friend of mine who has a home business and had her taxes done by her uncle who is actually a CPA.

But there was one problem.

He doesn’t specialize in Home Business Tax Law and told her that she needed to make $500 in order for her to take advantage of all the tax write offs.

Now this may be true if you have an Limited Liability Corporation or a C Corporation, but this doesn’t apply to home businesses, which brings us to the first myth:

Myth #1: You have to show a profit in 2 out of 5 years in order to take advantage of the tax deductions.

This is actually the “Hobby Loss Rule.” Now you can have a hobby that can produce some type of income, but you have a HOME BASED BUSINESS, meaning you have an intent to produce a profit and you can prove it. By opening up a business account and keeping record, this can help prove that you are actively trying to make a profit in your business.

Myth #2: You can only write-off a room and the equipment and furniture as long as it’s exclusively used for your business.

This is the “Exclusive Use Rule” and it only applies to home businesses that provide SERVICES as oppose to those that supply PRODUCTS. Also “Incidental and Occasional Personal Use” of a room, furniture, or equipment (Computers, TV, etc..) can also still be use and yet still get tax write offs despite the Exclusive Use Rule.

Myth #3: The amount of write-offs can not be greater than the amount of money you made in your home business.

This is only true for Indirect Expenses such as Rent, Utilities, etc. which can not be more than the money you made in your home business. But as long as you have an intent to produce a profit you can use other categories such as Business Assets (desks, computers, filing cabinets, fax machines, etc.) and Direct Expenses (office supplies, cell phones, repairs and maintenance of rooms used for business) to compensate for write offs.

Once again, I highly recommend the book that was previously mentioned. This knowledge can definitely make a difference between losing out on the tax write offs and putting thousands of dollars back into your pocket.


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8 comments

  1. Steven Dean says:

    There is so much stuff to take in at once when it comes to taxes. I’ll tell you that they probably make this stuff so complicated to understand so you miss out on what you should actually be owed back in taxes.

    I really enjoyed the previous blog that talked about the taxes of what you can write off if you own real estate or a business. I’m still trying to put all the pieces together on that. But I do take the advice that I hear from people but i also take it very lightly. Cause what one person may know another person may have the other piece to the puzzle that can land you some more money.

    Interesting on the Myth #3 the write off can not exceed your home business. Well those that are making the high price monthly figures I would only assume that you couldn’t make back nearly over what you paid out. Thanks for sharing Sherman You can write an entire book on this stuff.

    Steven Dean

    • Hey Steven,
      I’m so glad that I went to the tax seminar for home business a year and half ago and purchased this recommended book. I have seen anyone talk about this subject and it really needed to be put out there.

      There are so many home business owners that are not getting back what they deserve and this information will definitely help them out so they can have another reason not to go broke and quit. As always, thanks for stopping by and showing your support.
      Take Care!

  2. because of my business i got 3k back in taxes thank God for a home base business

  3. I feel you there Tanisha! Thanks for stopping by to comment!

  4. I got a refund last year but I’ve been told it wasn’t as much as I should have. As You said the CPA is not necessarily working “for us.” Even if I did believe he did all he could, he made the comment that the IRS would think I just had a “hobby” if I wasn’t making any real money. That comment was enough to make me think twice. I’ll check out the book You suggested.

    Thanks, Theresa Garland

    • admin says:

      Hey Theresa,
      I wanted to put this info. out there to show that, although you may be going to a CPA, the majority of them aren’t experts in home based business tax law. I’m glad that you found this information helpful!
      Take Care!

  5. Erika says:

    Hi Sherman,
    This is such a valuable post. People need to ask the pertinent questions when dealing with a CPA. My motto- “trust but verify”. I am a strong supporter of home-based business, however, I do encourage “incorporation” since it provides a little more protection for your personal assets (in case the CPA messes up your taxes and the IRS comes after you.)

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