The Tax Man Cometh
It is often said that the two things you can’t avoid are taxes and death and nothing is truer when you start your own home based travel business. Your should engage a tax professional to advise you as you set up your business, as this is the only way you can be sure that you are standing on firm ground. The IRS is interested in travel professionals because they generally deduct what the auditor might think of as a vacation. Extra care needs to be taken to make sure that you are not hit with back due taxes and penalties if audited. There are several considerations to make when entering the business and here are some of the more important. Here are just some of them.
Independent Contractor or Employee?
Your host partner might want to call you an independent contractor, but if all of the elements of being an independent contractor do not exist in the relationship, the IRS might decide that you are really an employee instead. Of course, if you are deemed to be an employee you are entitled to many benefits that independent contractors are not such as, payroll tax deposits, unemployment insurance, disability insurance and so on. Independent contractors do not receive any of these benefits but are required to pay self employment taxes and provide their own insurance.
So what is the difference and how does the IRS make a determination as to the legal definition when auditing a business? Control is the main factor used when looking at the relationship. If the agency owner requires exclusivity, does not have a written contract and demands that the agent attend training classes, then the IRS is likely to determine that the I.C. is actually an employee. This is especially true if the agent is required to man the host’s office on a set timetable.
But, if the agent has multiple relationships with other host agencies and suppliers, works totally independent of the host agency, is at risk of profit or loss independent of the host agency and provides for their own training and educations, they will likely be deemed as independent contractors.
Your Home Office
One of the major advantages of working from your home is the ability to write off the cost of operating your business. This can have a substantial impact on the taxes you pay. But, be aware that the IRS may closely check to make sure that the space is actually being used for business only. From this perspective, you should have your office used exclusively for business. Your accountant and tax professional can advise you on the criteria you will need to meet for this deduction.
Your Travel and Education Expenses
Yes, you may be able to write that cruise off as a business expense depending on a ton of things. Your tax advisor can explain these opportunities in detail and it certainly is a reason to get into the business. Attending a conference, researching a group movement, familiarizing yourself with travel products that you sell may also be tax deductible. However, be aware that the IRS is likely to audit your return if there is substantial travel expense without offsetting revenues.
General Business Expenses
Operating your automobile for business use is deductible, as are all of your general business expenses such as telephone, postage, advertising and other normal expenditures one would find in a normal business operation. Just keep excellent records with receipts and detailed notes of the business purposes for the expense and you should have no trouble at all.