Basic concepts for the self-employed:

• Match all allowable ordinary and necessary expenses of your business for each tax year against taxable income. How much income a business has in a given year should be taken in to account when deciding to use first-year expensing vs. depreciation for expenses.

• Deduct ordinary and necessary business expenditures in two ways. First, deduct items with a useful life of less than the current tax year by expensing these items. Second, capitalize the remaining assets by deducting them over a specified period of time.

• You must allocate expenditures between personal and business use. Expenditures do not have to be either entirely deductible or nondeductible. The personal portion is not tax-deductible; however, the business part is fully tax-deductible as a business expense.

• Avoid the IRS's "hobby rule." If you do not show a profit in three out of five years, you may be required to demonstrate and defend the fact that you are operating with the genuine intent of making a profit.

Be Careful:

• Cell phone usage, at least 50 percent of cell calls must be for business--and your records must substantiate business vs. personal use.

• The IRS ended the "mailbox rule". The new rule stats that other than direct proof of delivery, a certified or registered mail receipt is the only way to claim that a tax document was delivered to the IRS or tax court on time.

Working from home is great for many reasons:

A home office can be a rich source of deductions if you play by the rules. You can have a home office in a single family home of a studio apartment, just like any other home office, any space attributed to a home office must be exclusively used for business purposes.

• A percentage of your rent if you rent or lease
• A percentage of your mortgage interest if you're buying your home
• A percentage of real estate taxes and homeowner association fees
• Household supplies and cleaning services for the business portion of your home
• Repair and maintenance of your home office Utilities (electricity, gas, water) attributable to the business use of your home
• Furniture in your household that you convert for use in the home office
• Phone services, minus the base local service for the first line into your home (Lines devoted to the Internet and faxing may be entirely deductible.)
• Business use of your automobile from the time you leave your door

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About the Company:

For more on what can work for you, against you, and how to do better this year, see J.K.Lasser’s Your Income Tax 2006 and the Supplement at www.jklasser.com. 

Contact Info:
For further information, to request a review copy of J.K. Lasser’s Your Income Tax 2006 or to schedule an interview with J.K. Lasser spokesperson, tax attorney Donna LeValley, please contact:

Nancy Colson
Managing Director
The Alternative: Media Placement Specialists
212-246-1580/
ncolson@nyc.rr.com

For a step-by-step guide to starting a business, order the CD-Rom "Power Home Business Ideas" from PowerHomeBiz.com at http://www.powerhomebiz.com/Index/practicalbizideas.htm