With the end of the calendar year just days away, it is a wise time for home-based business owners to get a closer look at their books to make sure they are positioning themselves for the April 2000 tax filing deadline. Greg Porcaro, a certified public accountant and partner in the Warwick-based firm of Brindamour Otrando Porcaro & Associates, Ltd., said now is the time to reassess your financial status and make some critical decisions, such as whether to accelerate certain expenses by purchasing equipment before the end of the year.
“Even if there isn’t anything you are planning to do right now, taking stock in advance of the year-close can’t hurt,” Porcaro said.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
Learn More
And this is the year, Porcaro said, which likely will find many more businesses that will qualify as home-based businesses under new federal tax laws. New tax laws related to the definition of a home-based business were adopted as part of the Taxpayer Relief Act of 1997, but not scheduled to take effect until 1999.
”Prior to 1999, most businesses had to perform their service in the homeit was mostly computer or office work, or maybe a craft shop run out of a garage,” Porcaro said. “It was almost impossible to qualify, particularly if you were a consultant.
But the new law, he said, is more liberal in its definition.
”Now, if the home is the place where you conduct all of your administrative functions, you are going to be entitled to a home office deduction,” Porcaro said. “It’s a big change – and a long time in coming.”
Because the law was adopted two years ago, Porcaro said it’s possible that some small business owners are unaware of the changes. For some, the changes could mean an additional deduction of a few thousand dollars.
Roger Biron, a certified public accountant with the Providence-based Ward, Fisher & Co., agrees that this is the time of the year to make decisions on expenses.
”The normal tip at this time of year for a home-based business is to either accelerate or decelerate expenses,” Biron said. “That’s pretty standard tax advice.”
The Internal Revenue Service actually recognizes a wide range of deductible items as home-based business expenses. Paul and Sarah Edwards, syndicated columnists, radio hosts and the authors of a series of “Working From Home” books, include the following as possible deductions:
* Cleaning a home office
* Condominium association fees
* Household furniture converted to use in the home office
* Household supplies used in the business space
* Mortgage interest (partial)
* Real estate taxes (partial)
* Repair and maintenance of office portion of home
* Security system
* Telephone line used exclusively for business if it is a second telephone line. The basic local service for a first line, including taxes, is not deductible; however, business long-distance calls on the personal line are deductible and services added for business use like call waiting may be deductible.
* Trash collection
* Utilities attributable to business use of home (electricity, gas)
The Edwards offer a wide range of tax advice throughout their series of books. Some of it as simple, as it is important. For example, when mailing something to the IRS, they suggest; “use certified mail, return receipt requested. It is acceptable proof that you filed the required documents even if the IRS loses them.”
The Edwards add; “Think of your records as footprintsthe written documents – invoices, bank statements, canceled checks, deposit slips and especially receipts – are the paper trail that your business operation leaves behind.”
Millie Szerman, president of the Los Angeles-based New Directions and author of the soon-to-be-released “A View From the Tub: An Inspiring and Practical Guide to Working from Home,” is a home-based business expert who has been featured on the cover of Money magazine.
Szerman said that when it comes to taxes, she always begins with the same advice to make sure clients stay in the good graces of the IRS.
“Whatever room they use as their office, it needs to be designated as strictly business; it can’t be a bedroom with a computer in it,” she said.
Szerman said it is also critical that home-based business owners break down their expenses in detail so that they do not open themselves to being double-taxed.
“For any out-of-pocket expense, they must notify their clients to make sure that reimbursement is not included on the 1099 form – if it has already been reimbursed,” she said. “A home-based business entrepreneur should invoice separately their services and their reimbursed expenses, otherwise they are going to pay taxes on their reimbursed expenses.”
And while year-end can bring with it a high degree of stress, home-based business owners should take heart, Szerman said. They are part of a rapidly growing segment of the business community – and they are being taken very seriously, she said.
”This is the best of times for home-based businesses,” Szerman said. “Corporate clients are looking to cut their outlay, and there is a natural assumption that if you are based at home you are going to cost less.
It’s a formula for success, Szerman said, and it’s fueling a dramatic move toward working from home.
”By 2003 more than 50 million Americans will be doing some kind of business from home that will either supplement or represent their total income,” Szerman said.
Resources available
Home-based business owners will find an array of resources at the Home-based Business Association of Rhode Island, which operates out of the Central Rhode Island Chamber of Commerce in Warwick. HBARI has more than 300 members. For more information, call 732-1100. Another valuable resource is the First Stop Business Information Center, at the State House. The telephone number is 222-2185.
The Rhode Island Division of Taxation also offers taxpayer assistance and research. The following telephone numbers may be helpful: Tax Administrator, 222-3050; Taxpayer Assistance and Research, 222-2905; Personal Income Tax, 222-3911; Forms & Publications, 222-3934.
