Starting a home business question.

[2moretrees]

I was reading that starting a home business is a great way to save money, but I don't understand exactly how this works. If you lose money while starting up the business, how can you save money? can someone explain this to me in very easy to understand terms?

[DivaJen]

For us, running our own business has allowed up more tax write-offs.

[terry1156]

The key is that you have to have someone bringing in money. If your husband works and makes $30,000 and you start a home business and you lose money, you can deduct your losses from the $30,000 income. Where people really save is deducting a % of their rent, utilities, etc. The reason this is so profitable even when you lose money is because even if you didn't have a home business, you would probably spend about the same amount on these things.

Here's an example. Your husband has $30,000 in earned income. Your rent is $750 a month and all your utlities come to another $250 a month. You don't have a home business, so your are taxed on $30,000.

Your husband has $30,000 in earned income. You have a home business and have set aside 20% of your home for doing it. Your rent is $750 a month and all your utlities come to another $250 a month. You don't make any money although your tried, but since you tried you can deduct $150 for rent and $50 for utilites each month as part of the business. So you end up paying taxes on $27,600.

You would pay rent and utilities if you had the home business or not so you get savings Since there are a lot more things you can deduct other than rent and utilities, you can save a large amount even if the home business doesn't make any money.

[2moretrees]

Thank you for that explanation. I think I understand a bit more now although it's still a bit confusing for me.

[singinjeannie]

I think a real key here is not LOSING money on the home-based business. You have to be really careful about that. Example: My husband and I started a home-based business and ended up losing money on it (big money). Sure, we can deduct what we spent on the business, but we're still going to be in the hole, rather than having it help us.

Watch what you spend on the business itself. The less you have to put in to start, the better. If you're good at whatever business it is you start, and you can make a little money off of it, you'll certainly do better at tax time!

-Jean

[terry1156]

Yes, it's important not to lose money. You can actually lose some and still come out ahead when tax time comes around, but losing money should not be your goal. That is why most financial people recommend that yuo start a business with something you're familiar with -- a hobby or activity you have good knowledge about.