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______________________________________________________________ --- Welcome To --- H o me B i z B y t e s Visit us on the Web at:http://www.HomeBusinessOnline.com ..... February 23, 2000 * See end for contact, submission and subscriber information. _____IN THIS ISSUE_______________________
- EDITOR'S RAMBLINGS - FEATURED ARTICLE - COLOSSALLY COOL CLASSIFIEDS - TIP OF THE DAY - DOWNLOAD OF THE DAY - ONLINE RESOURCES OF THE DAY - SITES OF THE DAY - KIND THINGS YOU HAVE SAID... Thanks! - Contact, Submission and Subscriber Info _____LOOK!_______________________________ Please give our sponsors a click. Can your business use a few extra bucks? Then join thousands of other businesses in the online barter revolution by clicking on www.LassoBucks.com Save cash. Find new customers. Get the goods and services you need by trading with other businesses, rather than spending your cash! To help you get started, sign up by February 29th and get 100 LassoBucks! It's better than barter!
_________________________________________ A warm welcome to our 132 new subscribers this week. This issue's article is provided by Jim Schneider, an innovative tax attorney. Jim was first introduced to me by Jim Salmons and Timlynn Babitsky of Sohodojo, whom I have highlighted in the "Site of the Day" in this issue. Thanks, Jim and Timlynn. You're going to love Jim's concepts. Thanks to those who sent in their stories. I'm still gathering home-based stories of all kinds... success stories, disasters, how you found your niche, part-time, full-time, and what you'd do if you had to do it all over again. I'll give you lots of exposure for your story. Send yours to Editor@HomeBusinessOnline.com We upgraded the Classifieds at our site this weekend, adding some extra functionality. Tell us what you think. http://www.HomeBusinessOnline.com/market/classifieds/links/ Many new subscribers have expressed interest in finding a home-based business. Our new newsletter BizOpBytes is specifically for those looking for a business opportunity who want honest, unbiased information and opinions. Here's how to subscribe: bob_sub@HomeBusinessOnline.com?subject=Subscribe_BOB RAMBLINGS... We small guys are getting noticed and are to be taken seriously. As home-based professionals, we are part of a large movement. We are what makes up the "New Economy." Let me know what you think. I read every email. Heidi Perry P.S... 1) How many home-based businesses do you currently have? Cast your quick vote at _________________________________________ By James E. Schneider, LL.M., a.k.a. Taxman86 (c) 2000 [Note from Heidi:] Of most significance to you and me, Jim Schneider is an advocate of small and home-based businesses. Operating his firm in San Diego, California, Jim has been licensed to practice law with the State of California since January, 1967. And who are his key employees? Why, his family, of course. You can read a long, impressive list of Jim's credentials and accomplishments at http://www.taxsavings.bigstep.com/aboutus.html Jim has taken the phrase "The New Economy" to a very basic level... home-based business and the Internet. As such, he has coined the phrase "Tax Savings begins at home with 'Yourself.com, Inc.'" Jim's knowledge of home-based business tax options surpasses those I have seen by most accountants. I asked Jim to present information on the four areas below. Addressing each specifically, you'll learn about tax-favored neighborhoods, the big difference between today's home-based business and that of 10 years ago, which business form is most likely to be audited... So, here we go with "The New Economy Through The Eyes
of a Tax Lawyer." 1. Internet Time 24/7/365 2. Key Employees 3. Self-Employed vs. S Corp. vs. C Corp. vs. LLC 4. Tax Favored Neighborhoods [Empowerment/Enterprise Community/HUBZones/Renewal Zones] In May 1995, the New York Times Magazine ran a front page article on WIRED Magazine, and the Digerati. Bill Gates saw that article and wrote a Memo to his senior staff, we are told. He read the article and went to a bookstore to see what Internet was all about. The rest is history. "The Silicon Boys and Their Valley of Dreams," by David A. Kaplan and The New York Times Op-Ed Piece, "Dynamo and the Microchip," by Paul Krugman on February 20, 2000, http://www.nytimes.com/library/opinion/krugman/022000krug.html make it clear that the Microchip has been around for a long time, so has home-based businesses [As President Ronald Reagan said in his first interview from the White House's living quarters: "... he has been there before, he grew up above his father's Drugstore in a small midwestern community."], but the Internet, for most of us, has only been around since 1995, and high speed internet within the last 12 months. Today a "Web Site" is so common that it is overlooked by most; but to US, the Web Site can be a business, if one so chooses. It is a business that can be started and run from a desk top, from a car, from a mountain cabin, you name it. In the past, raising a family in the most cost efficient
manner, such as the family farm of old, meant every
family member had a job on the farm. Today instead of
the family farm we have the Home-based business of the
21st Century which we assume includes: A Web Site can be a business for tax purposes, if you want; and you are in business or you're not. If you are in business then for tax purposes you are entitled to take certain deductions, above the line, if you are a sole proprietor, the Schedule C, if you will. One of those deductions being the Home-Office Deduction, as authorized by IRC Section 280A for individuals and S Corps. The reason that IRC Section 280A was enacted in the early 80's for individuals and S Corps. [the legislative history is clear that IRC Section 280A was not to apply to IRC Section 119 situations] was to eliminate the perceived abuse/litigation of taking personal deductions as business deductions when operating out of a taxpayer's home, or for using the home for some business matters while having the Actual Business someplace else. The history of Home-Office deductions, pre IRC Section 280A, still lives on, and it is based around the concept of "Convenience of the Employer," which can be found in many business tax provisions. If it benefits the business, and at the same benefits the employee, that is O.K., but if it is only for the Employee's convenience that is not O.K. Based on the above the following observations can be made: 1. The New Economy, based on Web Sites, high speed
computers, and high speed Internet systems clearly works
and operates 24/7/365. Today many small Home-based
businesses are operating on national and international
scales, once only known by large Multinational Corporations.
This has brought the little guy into the big guy's arena,
and as such he can and must play by the big guy's rules.*
Service is king today, and that means being able to handle
all on weekends--24 hours a day. 2. The small Home-based business is generally owned by one person, or a couple/family, or one or two partners, who may or may not be living together, which brings into issue the type of business structure that is best. Here we are faced with many tax issues, such as self-employment taxes on net income, home-office deductions, tax brackets, fringe benefits, tax status when sold, fiscal vs. calendar years, and ease of operation/flexibility. Most family Home-based businesses appear to be formed as Sole-Proprietorship/Partnership Model [Partnership if we are in a separate property state with a husband and wife as owners] [Limited Liability Companies with one or two owners are either treated as sole proprietorships or partnerships for tax purposes, as the case may be], or if incorporated, having elected S Corp. status. We believe that this may be in many situations a BIG MISTAKE. We like the C Corp. 3. The S Corp. vs. C Corp. debate rages [if no corporation the owners/partners will be responsible for self-employment taxes on up to $76,000 per owner/partner] but consider the following: a. C Corps. can adopt a fiscal year end of 01/31/00 and defer up to one years' of income, if the Corporation is not a Personal Service Corporation ["PSC"] under IRC Section 441**; **We suggest that many professionals with Home-based Businesses think they may be a PSC but that issue, now that Web Sites and other non traditional professional services are involved, is not so clear cut. [The corporation must allocate compensation based on the types of services performed to determine status under IRC Section 441] b. C Corps. can obtain the benefit of various fringe benefit rules for the benefit of their employees, including IRC Section 119, meals and lodging. IRC Section 105 health insurance and medical reimbursement, and the list goes on. Some corporate fringe benefits are limited, such as educational assistance under IRC Section 127 or Cafeteria Plans under IRC Section 125, if there are MOSTLY key shareholder employees, but we suggest that IRC Section 132, Certain Fringe Benefits may pick them up. c. C Corps. may qualify for IRC Section 1202, "Qualified Small Business Stock," status, and its companion IRC Section 1045. Under these IRC provisions a new C Corp. can be formed and sold after six months with 100% of all gain subject to deferral. d. Corporate/Shareholder loans can be made without much fear of challenge in a C Corp. situation whereas the same type of loan in a S Corp. may be challenged and treated as disguised compensation [subject to payroll and income taxes]. e. Sole proprietorships, especially those that take the Home Office deduction are more likely to be audited, with S Corps. next and C Corps. last in line, if at all. f. Family tax planning is easier in a C Corp. with the gifting of 10% of the stock to children, who may also be employees [Web Masters, if you will]. This allows the parents to create a life insurance trust for the benefit of the surviving spouse/children, as the case may be with the premiums paid for by the children from their earnings. 4. Urban Home-based businesses are becoming more popular as more professionals want the benefit of working at home and having the convenience of maintaining their professional contacts. Many of these urban areas may fall with State or Federal Empowerment/Enterprise Community or SBA HUBZones, with various tax and financial incentives. These locations are all over the place and in many cases are not well known. We suggest that anyone interested check out THEIR Location at: http://www.hud.gov/ezec/locator/index.html
and If you are interested in finding out more on the tax issues
of Home-based business in general, or a Urban Home-based
business, San Diego style, in particular, check out our
Web site at Send feedback on this article to _____LOOK!_______________________________ WE'RE CELEBRATING PRESIDENT'S DAY! Yes! We're offering our popular 2 ads for $12 special again for a limited time. Get 2 classified ads in HomeBizBytes (over 7,000
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The New Economy Through The Eyes of a Tax Lawyer