How To Identify Your Home Business
Published September 1st, 2009 in UncategorizedHow To Identify Your Home Business
As with any business, giving the business a name an important decision. The same applies to how your business is organized.
My previous post we looked at defining a business and understand “A Profit Motive” is required to deduct business expenses and understand the difference between a business and a hobby.
With this said, either your business is organized as a sole proprietorship, partnership, limited liability company, or corporation, your annual income tax form requires you to provide you’re business name (if it’s different from your own name), your principal business or profession, your principal business code, and your employer identification number (EIN) if you are required to have one.
Basically what this means is your business must have a name. The name of your business can be your own name or you can choose any name you desire to identify your business. The choice is yours and yours alone. I suggest naming your business with a name that fits the profile of the business type you have chosen to establish. An example would be Sally’s Creations. If your name is Sally and you create greeting cards.
I suggest starting your first business as a sole proprietorship where you use your Social Security number to report your business earnings
and deductions on your tax return. IRS form 1040 Schedule C, Profit and Loss from Business, the correct form when filing your tax return.
Corporations, limited liability company (LLC) and partnerships can also be used as a business plan but keeping it simple is best unless you have prior business experience and feel a different business model best suite your needs. My suggestion is to keep it simple for now.
Materially Participation
Materially participation in your business is a requirement in order deduct losses. “Do you materially participate?”, a question asked on your tax return and must be positive to take advantages of tax breaks and deductions allowed. This is a no-brainer for most people as participation is required if any business is to flourish. If you do not participate, allowable deductions are very limited.
It is my belief that an informed business owner saves both time and money. Correctly identifying your business makes our Uncle Sam happy as well.
| Author: Larrie Perkins, Tax Consultant and Founder of TaxMart Inc. Alabama USA
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