Virtual Inc. A Newsletter for the Online Business Community Volume I, Number 5, August 1994 The following is an abridged version of Virtual Inc., a unique publication for online businesses and telecommuters. Virtual Inc. features news, interviews, and profiles of leading developers and businesses who are working on the information highway, as well as useful advice about telecommuting and working on the road. To receive a complimentary sample issue by first class mail, contact vfusion@aol.com. OR ****CALL OUR TOLL-FREE NUMBER: 800-269-8825**** For subscription information see the end of this file. ************************************************************ The Virtual Edge Editor's Word by Michael Daconta I am considered a "prolific" author. To my editor, this means I can write books fast -- and a lot of them. He may be trying to create a "monster." Nevertheless, I enjoy teaching and writing and therefore do plan to have many, many books bearing my name. And while writing my second book, I have learned of a vital strategy that allows me to maintain a fast writing pace. The strategy is to retrieve real-time information online so that the flow of writing never stops! The strategy sounds simple, yet it is incredibly powerful. In fact, it is also widely applicable to businesses outside of writing. Let's examine how it works and then what it means in a larger sense. Picture me typing away at a critical program for my book, but for various reasons the code will just not compile (compilation is the process of taking human-readable text and translating it into computer machine language). Instead of getting angry and frustrated, I reach for the modem switch! Dial, ring, squelch... I'm connected to a huge brain trust! Zip! I flash over to the vendors forum and post a message. Zing! I whip out some email to online programmer friends! Close connection! In the short waiting period I move on to another task. Several hours later (never more than 24), I go back online and retrieve the answers to my problem. Magic! The critical point to understand in that scenario is analogous to driving a sports car at 80 miles an hour on the Autobahn; You need real-time information on where to turn, or you'll have to slow down or stop. The power of real-time information is now at your fingertips. There is a huge brain trust of hard-working, dedicated people waiting online to be tapped when needed. You are also part of that brain trust and help others when they need it. This is global cooperation at its finest Virtual Inc. will soon begin to bring you summaries on the key forums that are of interest to the virtual worker. We will help you locate the key online resources that can keep your business running at top speed. The power of the information highway is here today -- as long as you know where to look! Writing Off Your Home Office At Work by Harlan S. Kahn More and more entrepreneurs are establishing businesses in their own homes. In this month's article I would like to opine on some of the Dos and Don'ts regarding a business in your home as it relates to the IRS and the tax laws. Being self-employed has many tax advantages. It shifts the foundation of tax law and tax deductions into your favor. The business page of the tax return has the ability to include in your tax return business expenses that otherwise would have no declarable taxable value (or shift deductions that are partially declarable into a more favorable status). For instance, a business in your home immediately affords you the ability to consider the portion of the home dedicated to the endeavor as deductible. This means that a portion of the rent or mortgage you are already paying may be deductible for you. There are several guidelines, however. Here are just a few: Set aside a room dedicated solely to the purpose of the business. Conduct business on a regular basis from this home office or home workshop. Don't have a TV in this room; it makes people think this room is not used exclusively for work, which would negate the deduction. Don't have a bed in the room (unless, of course, you're a therapist). Learn to make a profit. Accompanying self-employment are many added responsibilities. Two important ones are taxes and record keeping. Because of the added deductions (and tax benefit), self-employment has increased record-keeping responsibilities. One day you may need proof of every deduction recorded on a particular year's tax return; the more deductions, the more records need to be kept and organized. This is why I methodically review shopping bags full of receipts, add them, categorize them, and summarize them for clients every year. Let's say you've been contemplating starting a primary or secondary business from your home. You probably have some questions. Among the most commonly asked questions are: How long does the IRS give you to be profitable? When you're a sole proprietor (not incorporated or in partnership), your business income or loss is reported on your individual (personal) tax return. In fact, in terms of the IRS you and your business are the same. All of your earnings (net of expenses and/or losses) are added together. Your business must show a profit on your individual tax return four out of the first seven years (in most cases) This means you can claim a loss at least three years in the first seven. A loss can significantly reduce your adjusted gross income, which ultimately reduces the taxes you pay to the government. Does the IRS set a limit on the amount of the loss you can deduct? No. However, I generally ask clients several questions regarding proof of their investment to protect them from an IRS audit. In almost all cases, your loss can never exceed your investment. What items other than rent can I deduct? Depending on individual circumstances, a business typically has utility, telephone, maintenance, supplies, transportation, insurance, and tax expenses. A copy of form 1040 Schedule C has a list of most of the common deductions. There's even room on the tax form to list a few of your own deductions. In many years of tax-return experience I have seen quite a number of unusual items legitimately listed (including make-up, theater tickets, limousine rides, and panty hose). Do I have to go to an accountant or a CPA to file my taxes every year if I have a home-based business? Seasoned preparer's generally don't make the mistakes beginner filers make. A career accountant, whose service is monitoring businesses and filing tax returns year round, knows about deductions, substantiation, and tax strategies you never even thought of. Accountants understand basic tax law, have lengthy filing experience, and a general feel for business. For example, new businesses may need a little advice on forecasting taxes for the coming year, or help in budgeting monthly expenses. In my experience, people filing their first schedule C rarely schedule and support deductions properly. All too often, the results of a novice filing his/her own taxes are inquiries from the IRS requesting further information or failure to take advantage of an obvious deduction. Remember, many tax advantages exist for the individual with a business in the home. Many advantages. The key is to remember that you are running a business to make a profit and not a hobby designed to avoid taxes. (Harlan S. Kahn is a CPA with a practice at the Atrium Building, 98 Cutter Mill Road, in Great Neck, NY 10021. He is also secretary/treasurer and a founding member of the Network of Allied Professionals, Inc. (a professional continuing education organization on Long Island). Harlan also has been an occasional guest speaker on the weekly Long Island-based radio show "Financial Planning in the 90's, with Alex Mitchell" on WBGG 1240 AM.) ************************************************************ Subscribe to Virtual Inc.! Youll get much more useful information. Here are some items not included in this electronic version of Issue #5: * News - The latest from Cyberspace * Profile - Andrew WelchÕs Software of the Gods Virtual Inc. A Newsletter for the Online Business Community Editor In Chief Michael C. Daconta Managing Editor Jon X. Volquardsen Associate Editor Marc I. Whinston Contributing Editor Jeffrey Cohen Art Director Ari M. Weinstein Published and Copyright (c) 1994 by Virtual Fusion Inc. 5160 Calle Bonita, Sierra Vista, AZ 85635 vfusion@aol.com Phone: 800-269-8825 Fax: 602-458-1063 Virtual Inc. is published 12 times a year. Annual subscription rate: $25. Send or transmit subscription requests to one of the addresses above. Letters to the Editor are accepted via electronic mail only. Letters submitted become property of Virtual Inc., and cannot be returned. Virtual Fusion Inc. is seeking programmers, artists, and engineers who want to work from home developing software for commercial distribution. E-mail vfusion@aol.com for further details.