Have a tax question? Need a tax form, filing instructions or an IRS publication? Look to the Internet. The IRS debuted its Web site in January 1996, and it has already been accessed more than 271 million times.
"There are publications available that pertain to homebased businesses, such as publication number 587, Business Use of the Home," says Steven Pyrek at the IRS. "Tax forms for sole proprietors and for claiming expenses for the business use of your home are there, and the Q&A section [is] about homebased businesses."
Other offerings include:
*IRS Newsstand: A listing of IRS news releases and fact sheets.
*Plain English: Simple-to-understand summaries of IRS regulations.
*Tax Stats: Data compiled from individual and business returns filed with the IRS, and other sources.
*Taxpayer Education: Easily digestible summaries of 140 tax topics.
*A keyword search and site tree for all available topics, plus a list of IRS electronic services.
Visit the IRS at http://www.irs.ustreas.gov
Virtual Teller
Home banking is a homebased entrepreneur's dream come true. Twenty-four hours a day, seven days a week, you can check balances, transfer money between accounts, see what checks have cleared and monitor corporate credit cards from your office.
"When running a homebased business, you may find yourself working at 11 o'clock at night and wanting to check balances," says John Hall of the American Bankers Association. "With home banking, you can."
New services are always on the horizon. "The killer application in PC-based banking will be when the machine can spit out cash through your home PC like an ATM," says Hall.
If you're considering home banking, shop around for the best deal. Some small and big banks--including Bank of America and Wells Fargo--offer free use of home banking services in combination with other accounts. Some offer it free with minimum balances; others offer free software but charge a monthly fee. Look for the package that works best for you.
Pay Day
The sooner you get paid for your products or services, the sooner you can invest the money. Here are two tips for speeding up the collection of receivables.
Five days before payment is due, call the customer. Ask whether they're happy with the product or service and remind them that payment is due shortly.
"It's an easy way to remind them payment is due," says W. Kelsea Eckert, owner of Eckert Law Firm P.A. in Jacksonville, Florida, and author of Getting Paid In Full (Sourcebooks Inc.). "It works because a happy customer has a harder time ignoring a debt."
Incentives also work well. On your invoice, offer a 2 percent discount if the total is paid within 10 days. Or, for late payments, call and offer a 2 percent discount for immediate payment.
Room Tax
Working at home pays off . . . sometimes. As you've probably discovered, you get a tax break as soon as you open for business because you're allowed to depreciate the portion of your home you use as an office. Well, there's one little catch: When you sell your house, you'll recapture that depreciation and pay tax separately on your home office.
"You have to calculate two separate gains," says James Ferrell, a CPA with accounting firm Chastang, Ferrell, Sims, & Eiserman, P.A. in Winter Park, Florida. "If you use 10 percent of your home for your office, you have to allocate 90 percent of the gain to the personal side of the home and 10 percent to the business."
For example, let's say you bought your home for $120,000. You subtract out the land cost of $20,000, leaving an actual structure cost of $100,000. If you use 10 percent of your home as an office, you can depreciate $10,000 over 39 years, which works out to approximately $256 per year. After three years, you've depreciated the business portion of the house by $768, which gives you a tax basis on the business portion of the house of $11,232 ($12,000, which is 10 percent of the purchase price of your home, minus $768).
You then sell your house for $150,000--$30,000 over the purchase price. Because you took a home office deduction instead of a realized gain of $30,000 on your personal residence, you'll have a realized gain of $27,000 on your residence and a recognized gain of $3,768 ($3,000 plus $768) on your home office.
The $27,000 is a realized gain but not a recognized gain if you purchase another home that is more expensive than the one you sold. Therefore, you can defer the tax on the personal residence portion of the gain. However, the office portion of the gain of $3,768 must be recognized unless you stopped using the space as an office at least one year prior to the sale. In that instance, the total gain can be rolled over and tax-deferred, or if you sell your house for less than the purchase price, no tax will be due.
But if you're going to have to pay that tax when you sell your house, you may wonder if the home office deduction is worth taking. "It's worth it because the name of the game in tax planning is deferral," says Ferrell. "If you can defer a tax liability to a later date, you should."
When you sell your house, you'll have to deal with the home office tax issue; when dealing with taxes, consult with your tax advisor first.
It All Adds Up
By Heather Page
Personal finance programs are great for organizing your income and tracking expenses, but they often lack features that many homebased business owners could use, such as invoicing. Now Intuit Inc. has released Quicken Home & Business 98 for Windows ($89.95), a new version of the personal finance program that also delivers easy invoicing, receivables tracking and tax help.
Available for Windows 3.1 and higher, Quicken Home & Business 98 is designed specifically for those whose business and personal finances intermingle, such as consultants and sole proprietors.
Quicken Home & Business includes customizable invoices, which you can personalize by adding your own logo and industry-specific categories. You can also enter invoice information on pre-set client registers; the program then automatically calculates state taxes that need to be applied. Intuit's newest Quicken version offers to make homebased business owners' lives--and businesses--easier to manage.
Contact Sources
Chastang, Ferrell, Sims & Eiserman P.A., 1400 W. Fairbanks Ave., #120, Winter Park, FL 32789, (407) 629-1944
Eckert Law Firm P.A., 4981 Atlantic Blvd., Jacksonville, FL 32207, (904) 398-5600
Internal Revenue Service, (800) 829-1040
Intuit Inc., (800) 4-INTUIT, http://www.intuit.com
Marsha Bertrand is an Orlando, Florida, freelance writer who specializes in investment, finance and business topics.
This story appears in the January 1998 issue of Startups. Subscribe »
