• The Bottom Line On Home Based Business Taxes
Posted by Kate Lister on April 16th, 2008
Your taxes were due yesterday, so now is a good time to think again about your home-based business bottom line.
A few years back we needed a new accountant for our air tour business. One we talked to, a former I.R.S. agent, said to us, “Some business owners want to sleep well, others want to eat well. Which are you?”
What he was telling us was that we were talking to the wrong guy if we wanted to cheat on our taxes. We knew that if we wanted to get a good night’s sleep on the eve of an I.R.S. audit, we’d come to the right place. In the ‘been there, done that’ sense we knew the I.R.S. philosophy was ‘guilty until you can prove yourself innocent,’ and a good accountant with insider knowledge was worth his weight in gold–maybe literally.
But here’s a problem an accountant can’t fix: It’s all too easy to succumb to the temptation of understating your income, particularly if you run a cash business. Likewise, it’s tempting to deduct that week-long trip to Hawaii, even though you only spent one day doing anything that looked like work. A good accountant will figure out what you’re doing in either case, and a really good one will advise against it.
But if I.R.S. audit worries aren’t enough to keep you up at night, if you’ve been cheating, consider that understating your home based business profit will handicap your ability to raise money for the company. Lenders and investors won’t be amused when you show them your tax reports and than add, with a wink, that they really don’t show all your income. Dishonest business practices, no matter how good the real numbers may look, don’t make you a good investment.
In addition, while you may eat well in the short run, when it comes time to sell your business, you’ll find your plate far from full. That’s because businesses typically sell for a multiple of net income. So, if a home based businesses like yours sell for five times net, every understated dollar of profit will cost you five dollars when you sell.
Nighty night. Sleep tight. Don’t let the Fed bugs bite.
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