How to Start a Small Business for Tax Benefits and Additional Income


There are more than 20 legal tax deductions you can use from a small business on your itemized tax return, and you don’t have to show any profits or even revenue on your business for two years. The impact on your life is minimal, and in fact all that is required is a checking account and some organizational changes in your household. Then you can enjoy such benefits as claiming a room in your house and part of the household expenses on your small business. You might even discover an opportunity that will both open doors for your career while providing fulfillment you were not getting from your job. You can significantly improve your bottom line by leveraging income from employment or a profession as a result of restructuring your a personal small business with current resources.

Decide what you can do as a business. Think of a service you can provide that you can build a business around. If you are good with computers, it can be a computer service or even a database management or word processing service. The nature of this home-based business can range from consulting to being a fishing or hunting guide. Many people run cleaning, painting, carpentry, repair or network marketing businesses out of their home—and anything else you can think up. Maybe it will combine various services into one.

Decide what name you want for your business. Forget the clever names; think functional. If you can come up with a great name that says what you do, you might be able to use it. But the most important things to consider is what the name on your business account will be, especially your checking account.

Open a bank account in your business name. Obviously if the business has the same name as you, then you can circumvent some of the licensing requirements. For example, if you name the business John Gossett and Associates, then you can simply open a personal account under your name and print John Gossett and Associates on all your calling cards, letterhead and Internet domain. The bank will require a business license and a tax ID to open a business account or an account with a fictitious name, but they won’t ask any questions if it’s simply another personal account. Then you will be able to receive checks from customers that you can deposit in this account. If you have to apply for a business license, there probably will be residential zoning restrictions for operating a business out of your home. You can also look into a credit card merchant account.

Create an email address account with this name using your high-speed Internet provider—usually you can have up to 10 free accounts, so this will be easy.

Develop a website with this business name.

Convert a room in your house into a study or office. You will be able to deduct up to one quarter of your mortgage or rent payment as a business expense.

Get a telephone account for the business in your personal name. If you don’t have a second phone, now is a good time to sign up for a voice over IP account through your ISP. Having a separate telephone number will make this much simpler and more professional. You might even consider attaching a low-cost toll-free number to the new account your set up. Many land line accounts allow you to have up to two additional phone numbers on one account, so you could use one of these redirected to a voicemail on a temporary basis. But be advised not to give out your personal cell phone or home telephone number for this business--if you ever do attract a valuable customer you are likely to scare him away by doing this. And remember, it only takes 1 major customer to suddenly turn a personal business for tax benefits into a serious enterprise.

Purchase whatever electronic equipment you need and charge it to your business. Same with office supplies or any kind of related materials. Be careful to only purchase what you would normally use and not to spend more money supporting this new business structure than is absolutely necessary. Your main purpose is to create more profit, that is, discretionary income, from your current income rather than accumulate a lot of "toys" you wouldn't normally justify owning.

Collect receipts for everything you do. Now you have the opportunity to deduct vacation trips, restaurant tabs, gasoline, car expenses (57 cents per mile) or anything you can imagine you might use for this business. All you have to do is collect a few business cards and talk to a few people about your business. This is a tremendous asset. Imagine traveling across country and visiting an old friend in each city, inviting them out to a meal and discussing your business for 10 minutes. Suddenly that otherwise social call becomes a business meal and the entire trip becomes a business trip. You could easily spend $5000 dollars on a trip and deduct most or all of it--you might even sell your product or service while having a great time. I know one retired couple who rent their former home out 6 states away, then travel there twice a year. Not only do they benefit from a major investment in this income property, but every time they visit their old friends, the entire trip is a write-off.

Develop a set of books and probably arrange to have a bookkeeper or accountant--at least purchase a good computer program such as Quicken. Select someone who has a good understanding of IRS policy and procedures who can advise you on whether a deduction will be allowed or questioned. You want to keep this business completely legal and follow all the rules closely.

Start by running free ads on Keep records of what you post and how many calls or emails it generates so you can see which headlines and copy draw the most inquiries. Pass out business cards and post flyers on bulletin boards. Attend local networking meetings. Call on your local Chamber of Commerce and attend a couple of free events, then consider signing up (you usually can connect with one or more networking meeting groups you discover at these events without ever joining the chamber (memberships vary between $200 and $1000 depending on the city). Later consider paying for advertising using what you learn from free ads (if you spend $50 for an ad and bring in $100 of revenue, the ad pays for itself).

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