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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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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It’s that dreaded time of year when that dirty word comes up. “Taxes” Just the thought of it used to make me cringe. If you were like me, you would keep your fingers crossed and just pray that you wouldn’t owe anything come April 15th. Once my wife and I purchased our new home some 7 years ago, we found a new way to ease some of that, and when our children came along they were also ways to keep more of the money we earned rather than giving it to IRS. Every year, we would collect the W2’s from several jobs we had and total them all up. We were often surprised at how working several jobs would total to a nice gross amount. We then would also realize just how much money was taken away to pay for our taxes. Each year, the majority of us work until April 15th just to pay our taxes. A full quarter of our work year goes to Uncle Sam.

We are all looking to make more money to provide for our families and to enjoy the finer things in life. But when was the last time you got a raise from your employer? If you did, it was somewhere in the neighborhood of 2 ½% based on the national average. Yet the rate of inflation is more than triple that rate. So what do we do? We go out and find another part time job!

Consider this as an alternative…instead of a part time job, what about a part time Home Based Business?

We opened our YTB Travel Network business back in January 2005, and we worked this like a business. We also took full advantage of the tax benefits of this business. Here are just a few examples of what we were able to use to our advantage because we owned an On-Line Travel Agency. As you read this list, I want you to pay particular attention to the items on this list and compare this list to what YOU already have and are already using currently in you home for personal use.

1. Startup Costs - Expenses such as kits, or franchise fees may be claimed as a deductions.
2. Business Supplies – All receipts for any supplies we purchase for our business use. Computer paper, business cards, pens, catalogs, or any items purchased and use for our business.
3. Car Mileage - I stop one mile away from home to get a cup of coffee in the morning and give someone a business card, and the same before I come home. All miles between can now be claimed.
4. Computers - I purchased two new computers for business use, one laptop and one desktop and the cost of the computers may be claimed. We may also claim depreciation for 3 years after the computer was purchased.
5. Internet access - We have on On-Line Travel Agency and the internet in the home or office is for business, and we save all receipts for each bill paid.
6. An in home office - A portion of our home is an office can also be added.
7. Cell Phone – Is considered my business line. The vast majority of the calls received and made concerning our business are made on this phone.
8. Postage - All postage costs paid or shipping fees may be claimed. We keep receipts for all shipping supplies, and postage.
9. Dining- Before any waiter or waitress gets their tip from me, I make sure I have their name and e-mail address written on the back of the receipt so I can send them my Travel Steals and Deals. We just conducteda business transaction and dinner is now a deduction.
10. Travel and Entertainment - And for our business, this included ALL TRAVEL, including our personal vacations down to Disney in two weeks and our cruise on Freedom of The Seas in August.

Running a home based business reaps many wonderful tax deductions that other businesses some times may not claim. Most of the time, average home expenses can be related to your business can be added as a deduction on your taxes. We already had things like high speed internet access, cell phones, cars, and a room in the house we used as an office, but could not claim any of those items before.

Each business is a bit different so be sure to mention these ideas to your tax advisor or accountant to see if your business can qualify for these deductions.

And you may be thinking that those personal vacations we claim are not legitimate. We are Travel Agents and it is customary for us to travel in our industry. I don’t do anything underhanded or illegal. You’ll see a review of our trip and what we liked and didn’t like, just like we did earlier this year when we took a Weekend Getaway to Sandestin Resort. And that trip reminds me of another deduction we are able to claim this year, our Fuji S9000 digital camera that I took the pictures with to show all of you how nice it was.

Want to ease your tax burden? Want to keep more of the money you make?

We found a way to work smarter, not harder and started a Home Based Business.

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As travel agents with YTB Travel and Cruises, we have an opportunity to travel to some of the most beautiful destinations in the world. You may have heard a picture says a thousand words, and back around Christmas we made the choice to invest in a new digital camera for the increasing number of trips we are taking due to our business. Some of you had some great comments and we got a lot of positive feedback from the picture in last weeks entry “Weekend Getaway @ Sandestin Resort”.

Because my intent was to use the camera for our travel business, money really wasn’t an option since it was a tax write-off; however, I still wanted to find a good value for my dollar. I also had some key features I was looking for that I enjoyed from other cameras I’ve used in the past.

1. I wanted an SLR or “SLR Like” camera. I wanted to have manual control when I wanted, but also wanted good auto features when I wanted. Having a big camera like this type can be cumbersome at times, but it puts me in a more professional mindset and I find that I take better pictures.
   
2. I wanted Compaq Flash memory. Simply because I have several cards already and wanted to continue to use these cards. I also have the belief that this format is the most stable and durable, although I have no factual evidence to back that up. It just feels and looks more durable.
   
3. I wanted AA battery power. While I purchased rechargeable AA batteries, I always carry a few AA’s in my camera bag, just in case the rechargeable batteries die on me in the middle of some shore excursion we are on. AA’s are also easy to find in just about any convenience store so I am never out of power for long.

I began my search as most of us do when we are looking for a purchase of this nature. I started to surf and found various different digital camera reviews on the internet. After I found one that I liked, I made a trek to my local store to take a closer look at the camera. I found several from Cannon, and Nikon which I was intending on buying, but none had all the features I wanted.

I then ran into the Fuji FinePix S9000, which finally had all the features I wanted. Oddly enough, it was not a camera that I found easily at any local store so I could actually get a real life feel of what I thought I wanted. When I did find it finally at my local Micro Center, I found the camera very easy to hold, with a substantial right hand grip and plenty of room around the lens for my left hand for manual functionality. While it’s not a Digital SLR, because of the fixed lens, it still has an impressive 10.7X optical twist zoom lens. Most ultra zooms start at 36 or even 38 mm, the S9000’s lens starts at 28 mm, so I get wide-angle capability without the need for conversion lenses. The exact focal range of the lens is 6.2 – 66.7 mm, which is equivalent to 28 – 300 mm. The lens is threaded for 58 mm filters, which I ended up purchasing UV filter, more for protecting the lens than anything else.

One of the best features of this camera for me was the 1.8″ LCD that can be pulled away from the body and then tilted up to 90 degrees or down 45 degrees. My video camera’s LCD flips to the side, which I use to shoot over people in front of me, or take “ground level” shots of my kids and now I have the same versatility with my still camera. This was a big factor in my choice which I honestly wasn’t looking for at first.

What I am most impressed with is the image quality and color of some of the shots I’ve been able to capture. The pictures seem to pop out with incredible detail when first downloaded into the computer, thrown up on a television display or printed out on photo paper. Pictures compressed and then posted on the web really don’t do these shots justice. I’ve managed to get some real keepers even in the short two months of using the camera. I’ve created a hyper link of the picture to the right so you can get a better look at the detail.

It has taken some trial and error in capturing these shots with all the features this camera has. I’m a big manual buff, and its taken time to get use to using these controls again after years of using auto-everything. With two small children, the auto mode does come in handy. Start up time is very quick, 1.8 seconds, and comes in handy when I need to capture something cute quickly. But when I have the time to set things up properly in manual mode, I have yet to be disappointed in any of the shots taken.

I also really like the natural light feature of the camera, but have found that this feature is best used on a tripod. No matter how still you think you are, or the subject is, the slightest movement can blur whatever action happens during the shot. When needed a pop up flash will accommodate nicely and to my pleasant surprise there is far less red eye when using the flash than what I’ve seen on any other camera.

Battery life is also far better than I ever imagined. I enjoy using the optical viewfinder when I can, so that helps, but even when using the digital LCD and flash there is plenty of life still left for a full day of picture taking. I also like to review shots throughout the day and delete any shots that I don’t want to keep.

When it comes to the memory card, this camera has dual media slots for handling of xD-Picture Cards and Compact Flash/Microdrives, the S9000 lets you concentrate on shooting without worrying about storage space. You can even insert different types of media in each slot and then select which one you want to use to store each image as you shoot.

I recommend not only the biggest card you can get, but also a high speed card. This camera is a 9 mega pixel and can eat up a lot of space. A 512 card will capture about 104 pictures in “fine mode” which I have found to be the resolution of choice. I have the option of reducing the resolution and getting more pictures, but I never know when that next “keeper” will be taken. With this much information being written, the standard memory cards take a few seconds to be written or downloaded to the card. With a high speed card, I can not only use the video mode or take up to 4 frames per second continuous still frame. Keep in mind; this is a still camera, and not a video camera. While the video is adequate for streaming video over the internet, it is not something that will produce my next DVD family movie.

I found a great price from Butterfly Photo out of New York, and was very impressed with how they called to confirm my order and made sure I had everything I needed after my purchase. I did upgrade to the high speed card, and also bought a UV filter because of the call. I was forwarded an e-mail the next day complete with tracking information so I knew when the camera would arrive. I would highly recommend them as a vendor and will certainly consider them when it comes time to upgrade my digital video camera.

We are thrilled with the Fuji FinePix S9000 and am very impressed with both the manual, and auto features. I’ve already captured some incredible shots that I’ve already shared and am sure there will be more in the next few months as we travel down to Disneyland, Williamsburg, and our Royal Caribbean cruise on Freedom of The Seas later this year.

PS - If you're involved with YTB, sign up for our FREE Newsletter. As a Website Owner or Website Seller, we'll keep you up to date with all the latest news, acquisitions, and developments with YTB.

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