Before we venture into today’s topic, I need to make something perfectly clear. When owning any business and using portions of that business for tax deductions, you need to consult a CPA on what can and can not be used as a deduction with the IRS. I’ve written several articles over the years on the possible advantages of owning a home based business when it comes to taxes. We’ve always considered our experience with YTB a business and have treated it as such from the very beginning. For us, owning a business requires added responsibilities, and additional checks and balances that come with the territory.

Using a CPA the last four years when filing our taxes is part of that responsibility.

What I have also come to realize from talking with and communicating on various forms, blogs, and social networking sites is this: Not everyone feels the same type of responsibility, or has the same understanding about tax deductions and the role of the IRS.

Average individuals will make claims of what you can and can not deduct based on what they perceive to be true, or what they’ve heard is legal or illegal. I would advise in this case that you either thank them politely or simply tell them to go pound sand. (I’d prefer the later for some individuals) Unless you consult a CPA, I’d be suspect of anything you read or hear when it comes to deductions, taxes and the IRS.

We’re all very well aware of the industries fascination with YTB. Not a week goes by without some trade magazine, news publication or both publishing something about YTB. As predicted, there has been plenty of kicking and screaming this week from those few critics I spoke about surrounding Travel Weekly’s Power List publication. It looks as if the same tired old questions will continue and excuses will persist for another year. If you question why there has been no resolution to the questions and the excuses after three years of debate, it’s not really about resolution. It’s about keeping the questions active for as long as possible in order to keep their own perceptions about YTB and its place as a second (third, fourth, fifth) rate host agency alive.

Granted, a resolution would end that game, but so would the daily participation on blogs, forums, and daily discussions which take up so much of thier time. By simply asking (and never resolving) these same tired questions, they are able to deflect the attention to someone or something else instead of looking at their own issues or looking a solution.

Another question that keeps popping up, but never seems to get resolved in our industry are taxes. Apparently if you are not involved in a Home Based Business, you are not aware of the literally hundreds of sources available that provide information on the tax benefits of owning a business like YTB. Yesterday, Mark Murphy with Travel Pulse brought up a situation that questions a broader effect tied to how a traditional travel business is perceived by the IRS. He writes:

Could the proliferation of travel hobbyists, who are in it for the “free travel” perks, be part of the problem? That’s a question being raised by Gawne and other legitimate agents around the country. The challenge comes down to distinguishing between someone who is running a travel business and someone who is simply trying to run around the world, albeit at a discounted or tax-deductible rate. Where does the line get drawn?

The disconnect here is the term “hobbyist”. A word used to paint a picture because of the MLM arm and the misconceptions and myths surrounding it. It’s not about travel for them, it’s about all the recruiting. Because of the ignorance, Mark and others do not consider my business anything more than a “hobby” and therefore I do not qualify for deductions as any other business would. Unfortunately for everyone who paints this picture they fail to realize that the tax code does not specify, nor is the IRS responsible for determining proper deductions because one is a traditional business and the other is an MLM business.

The editorial came very close but never mentions the term “profit motive” which would go a long way in clearing things up. “Profit Motive” is actually what the IRS looks at. But few are willing to accept the anyone in YTB can actually make a profit using the YTB business model.

Jeff Miller, a travel attorney in Maryland who is also a columnist for Agent@Home magazine helped specify for everyone that the IRS looks at deductions as “ordinary and necessary” as part of it’s qualification. According to Jeff, the types of expenses involved such as FAM’s are legitimate business deductions based upon the type of business activity conducted. Since YTB sells the same type of travel as any other agency would, I have my doubts that the IRS would make any type of distinction between the two business models simply because one has an MLM arm and one does not.

If, and this is a really big “if” here: If the IRS does consider YTB nothing more than “hobbyists” who pose as “travel agents” and we are using travel as a deduction, the industry has no one to blame but themselves for blowing this whistle. I’ve seen countless posts, blogs, and forums that not only link to the IRS but instruct anyone with a keyboard and internet connection with how to report what they believe to be improper deductions. As a result, there could be an entire class of occupation (Travel Agent) that is now a red flag for the IRS to investigate further. Their own fears, phobias, and misconceptions surrounding our business model and desperate attempts to rid their precious industry via any means they can think of is more than likely the reason if this is in fact the case.

Again, it’s doubtful that the IRS is actually doing this. But once again, the industries focus on what they perceive to be the problem not the solution would be the reason for any red flag here. Unless the IRS has a listing of which agency is MLM and which is traditional, there is no way you an expect the IRS to not lump everyone into the same category.

If some of these traditionalists would educate themselves and actually participate in the vast amount of webinars and courses available surrounding tax deductions and whats required to claim and document the deductions it would certainly help in resolving their issue. Mark did go as far as checking with someone who is actually qualified, but doesn’t appear to make any connection with what’s legal and ethical because he can’t get past an MLM stereotype, which Mark and others apparently have determined as unethical.

Using the IRS is nothing more than a ploy to cast doubt and fear when it comes to Travel MLM’s. Mind you, the traditional agent in question here should be able to document legitimate business deductions based upon the type of business activity he is involved with. A qualified CPA can address the issues directly with the IRS and explain how this is ordinary and necessary in the travel industry. As a result, the IRS will allow the deductions.

No harm, no foul.

So why is this even a concern? It’s not.

It is however another example of ordinary myths and misconception and the actions they feel are necessary to feed the anger and resentment towards YTB and Travel MLMs.

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Most of you who keep track of mileage like I do knew about the increase January 1 to 50.5 cents per business mile. In a rare move on Monday, the IRS approved an eight (8) cent increase in the rate mid way through the year starting July 1 to 58.5 cents per mile through December 31. This increase is in direct response to the higher fuel costs everyone is incurring. This new rate by the way is only valid for the last half of the year. (Previous mileage from January 1 through June 30 must be deducted at 50.5 cents per business mile.)

The IRS normally increases its mileage rates once per year, and did so this past year from 48.5 to 50.5 cents starting January 1st. The last time the IRS approved a rate increase such as this mid way through the year was back in 2005 after Hurricane Katrina led to a nationwide spike in gasoline prices.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by Congress, not the IRS, and remains at 14 cents per mile.

“Rising gas prices are having a major impact on individual Americans,” said IRS Commissioner Doug Shulman. “We want the reimbursement rate to be fair to taxpayers.”

Imagine that…the IRS wanting to be “fair” to taxpayers. I’ve heard it said that there are two tax laws here in the US.

One code for the informed; and one for the uninformed.

I constantly read comments from extremely fearful and uniformed individuals who think the IRS is out to get people. Any idea of legally and legitimately deducting anything on your tax returns concerning a home based business is a highly risky move. While I have never personally been audited, those I know of who have been audited, (including those in YTB) have told me that it’s highly overrated. Of course, they like me keep impeccable documentation and also have a Professional prepare their returns, as should you.

Those of us in YTB know of Andy Magnus and his site Your Tax Buddy, (Another term for Y-T-B.) and the discount we have with H&R Block with our RTA Advantage. I also know of several CPA’s who are cross line to me who understand the tax laws and what a home based business can do for anyone who owns one.

Back in February and March many people bought Ron Mueller’s book “It’s How Much You Keep That Counts” and I’ve also participated in some of his seminars and conference calls with tips on exactly how to document for your CPA and the IRS to keep things on the up and up. (Ron is the one who send me the special update via e-mail concerning this rate increase complete with a direct link to the IRS site.) Ron and Andy also cover how to ask the right questions when looking for a CPA that knows and understand what the tax laws mean for anyone who owns a home based business.

I can’t tell you how important it is to educate yourself on the in’s and out’s of tax savings in a home based business. Not doing so can cost you THOUSANDS a year paying Uncle Sam instead of keeping your own hard earned money. This country was founded on those that owned their own business, and the vast majority of tax laws still cater to business owners.

It’s the right thing to do for both you and your family.

Author’s note: If you’d like to see a perfect example of what I’m talking about concerning those who are uneducated about the tax laws and what it can do for you in a home based business, feel free to visit this post, which I found just before posting. Please understand that this blog poster and those who comment on it have absolutely no experience or education in tax codes or the IRS.

It’s your basic fear mongering, mud slinging and spin in an attempt to create doubt and fear in those who don’t take the time to educate themselves from qualified sources. (That’s why I post viable sources and documentation to find the real story here.)

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I’ve done a post about taxes about this time each of the last two years, and this year will be no different. There seems to be a bit of a buzz this year concerning the 2008 Economic Stimulus Package that is due out next month. I’ve said for many years that there are two tax codes; one for the informed, and one for the uninformed.

The principle involved here is time-honored and true: and that is — it’s your money.
~ Robert Dole

We often just take what we hear from others as fact without actually checking to verify for ourselves if what people are telling us has any merit. The media in the case of this Economic Stimulus Package is no different from what I’ve seen and has been feeding us information in bits and pieces, but here’s the part the media has overlooked.

No matter how Washington tries to spin this, it is NOT a tax “rebate.” If it was a rebate, how could people who paid-in no taxes, get a rebate? But most of them will.

Lately, they’ve begin calling it an “advance on our 2008 taxes.” If that were true, why would they also be telling us that if we don’t owe any taxes in 2008, they won’t take any of this “Stimulus” money back?

This 152-BILLION-DOLLAR bail-out program is an “unfunded government expense” — which is a term in “government-ese” meaning: “We don’t know how we’re going to pay for it.”

So, if it’s not a “tax rebate,” why is the IRS involved? They’re the only federal agency with accurate names and addresses of most legal citizens, so they have the best “system” for distributing the checks.

But the IRS doesn’t have a current address for every legal adult citizen, because some people are not required to file tax returns — retirees living on Social Insecurity, for example. But Congress has decided that the only way a person can get an Economic Stimulus check, is to file a 2007 Tax Return.

So those folks who don’t normally have to file, will be required to file a “special” tax return this year (called a Form 1040A). If they don’t file it, they won’t get a check.

Result? The feds will soon have a database of current addresses for nearly 100% of all adults in the U.S.

Can you say “Big Brother?”

Here’s another neat little feature of this program that most people haven’t been told. When they have your Social “Insecurity” Number (from your tax return) their computer will take a look to see if you happen to owe any back-taxes. If you do – they will automatically do you the “favor” of applying your “rebate” towards the back taxes you owe, instead of sending you a check.

Is there no end to how far our taxpayer-elected members of Congress will go, just to help us stay caught up in paying our taxes? Like I said, two tax codes; one for the informed, and one for the uniformed.

One final point.

How big a deal is this one time economic recovery bribe of $600? The average taxpayer running a home-based business and who understands the home-business tax breaks, is collecting additional tax refunds of up to $600 every month – not just one time.

The same Americans who are so excited about getting a one-time payment of $600, should understand that they can get a check about the same size every single month for the rest of their working lives – simply by having a legitimate part-time home-based business. That’s what Congress should be telling taxpayers, not “Here’s an unearned check; go spend us out of a recession.”

Are you about to lose out on some 2007 tax deductions because you didn’t keep accurate records? Do you even know what kind of records you need in order to make them legitimate?

I have a few ways for you to find out if you do or don’t.

One, find yourself a good tax professional. One that is qualified in helping you in your Home Based Business and the tax laws surrounding what is right and what is wrong.

Two, to help you figure out if your Tax Professional knows anything about Home Based Business tax laws, get this book from Ron Mueller, “It’s How Much You Keep That Counts”. If you want to find out some of the information found in this book, you can find a basic outline from last years post after I bought the book for our own business.

Three, On Tuesday, April 8 at 9:00 pm Eastern time (6 pm Pacific), Ron Mueller will conduct a special, Tele-Coaching Session devoted to the topic of How to “Reconstruct” Missing Documentation that will Audit-Proof Your Tax Returns.

There is no charge for this call. The call-in number will be 419-400-0203, and the access code will be 8683900#.

When all call-in lines are filled up (and they will be) you can join via the Internet by going to this special web link.

If you’re in YTB I would also recommend signing up for our FREE Newsletter for news and updates concerning the steps you need to take in order to keep your business on the up and up concerning the tax laws. (I posted several tax specific webinars from various professionals as early as January of this year.) In addition, we share other tips and tricks for you on how to make your experience with YTB a success.

Well, that’s it for today. The kids and I are going to be enjoying Spring Break this week together. They’ve been working really hard in school all year, and they’re looking forward to spending some time with Dad!

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Back around tax time this past year, I did a post on tax tip’s for owning a home based business, based on Ron Mueller’s book “It’s How Much You Keep That Counts!“. I just got word about a FREE webinar from the Tax Guru himself for this Sunday night, September 16th, @ 9:00 PM Eastern Time Zone.

While the Travel Industry and YTB certainly has tax benefits all it’s own, you may find this information useful if you are currently working from home, or considering starting a home based business. Ron’s book certainly opened my eyes to what I can claim legally with the IRS by converting what I considered personal expenses into a business expense. It’s saved us THOUSANDS each and every year we’ve been using the information and tips Ron has supplied.

Some of the topics will include:

~ Increase Your income Without Asking For A Raise!
~ Save $500 For Every 1000 Miles You Drive!
~ Create A Bullet Proof Record Keeping System!
~ Hire Your Children, The Right Way!

System Requirements:

PC-based attendees
Required: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.3.9 (Panther®) or newer

If you’d like to participate in the webinar, feel free to contact me and I’ll forward the information to you. But hurry, space is limited and filling up fast!

Hope you can join me on the call!

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The Number 1 way to reduce your taxes with a smile is to convert your personal expenditures into allowable deductions. How could this be you ask? Well, it’s not only true, but it’s a lot easier than you think. In Ron Mueller’s book “It’s How Much You Keep That Counts” he discusses in detail every major deduction, in black-and-white, the exact Congressional Law, the specific Article in the U.S. Tax Code or Federal Tax Court Ruling which specifically authorizes it.

One of the most surprising things I found was that the IRS does not require you to actually make a profit in order to write off these expenses, you simply need to be in “pursuit” of a profit. How cool is that?!

Here’s how you do it: Turn yourself into a business owner. This is not complicated, expensive or difficult to do, and incorporation is not necessary. We got started in our business after only a few days of research, it cost us less than $500 to get started, and we simply used our Social Security Numbers for tax purposes.

Establishing a ‘profit motive’ is the key

To be in business, you merely declare it. And by doing so, you can magically turn personal expenses into tax deductions. If you want to operate in a noncorporate format, as an individual proprietorship, but under a different name than your own, no problem. It’s easy.

In some states, you may have to file a “DBA” (doing business as) form with your local county clerk. Basically, you just fill out a form with your name, address and the assumed name under which you’re doing business. For example, I might be “Doug Bauknight DBA BandBVacations.com.”

Here’s the best part: Your business doesn’t have to make a profit for your expenses to be deductible. All you have to do is establish a “profit motive.” Under the Internal Revenue Code, a “profit motive” is presumed if you earn any net income in any three out of five business years.

It’s recognized and expected that new businesses probably won’t make a profit in the early years. In fact, in the early years, you can insist that the IRS defer any challenge for the first five years as to the legitimacy of your business by filing Form 5213 (.pdf download).

Remember you don’t have to show a profit — just a “profit motive.” The test for deductibility is whether you have an actual and honest profit objective. You need not have a reasonable expectation of a profit. The test is subjective: Was your intent to earn a profit? The IRS looks at the following factors to decide if your intentions are honorable:

- The manner in which you work your business.
- Your expertise and the expertise of your advisers.
- The time and effort you expend in working your business.
- The expectation that the assets used in your business may appreciate in value.
- Your success in carrying on similar or dissimilar activities.
- Your history of income and losses with respect to the business.
- The amount of occasional profits, if any, that are earned.
- Your financial status.
- The elements of personal pleasure and recreation.

That doesn’t mean that just because you enjoy doing your “job” that the expenses aren’t tax-deductible. The Tax Court has ruled that “suffering has never been made a prerequisite for deductibility.”

Even if you’re employed full time elsewhere, that doesn’t prevent you from having a home based business on the side. When we first started our Home Based Business, I worked a full time job, and had two part time jobs to boot. This works whether your business is your primary source of income or it’s a sideline. Mine was certainly a sideline the first year, but because we basically turned our hobby or cruising into a business, it turned into a full time business for us.

How to qualify as a business deduction

To qualify as business deductions, your expenses must be:

- Ordinary and necessary — defined by the courts and the IRS as “reasonable and customary.” – Paid or incurred during the taxable year.
- Connected with the conduct of a trade or business.

The term “reasonable and customary” depends on your specific business and the business customs in your locale. The expenses don’t have to necessarily be reasonable and customary to you, but simply to your particular trade or industry. There are innumerable cases of “hobbies” converted into “businesses” with expenses allowed. Our hobby is cruising. So we became Travel Agents. It is customary for Travel Agents to preview cruise ships so we can inform our clients. BAM! All our cruising just became a tax write off. We also took a trip to Disney earlier this year, and took the kids. Why? Don’t you think it might be necessary to get a 3 year old and 5 year old perspective on what they liked about Disney?

Focus on your profit-making motive. Remember that it’s not what you pay in taxes that counts, it’s what you keep.

Next week I’ll post a list of things that you may be able to now claim as a tax deduction because you’ve started a business. Some of this list may surprise you so make sure you check back!

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