What the wise do in the beginning, fools do in the end.Do you own a home -based business, or are you considering owning a home-based business. Knowing the tax benefits may assist you in planning your move wisely, or preparing your taxes accordingly. Most home-based businesses are run as sole-proprietorships, where all business income and loss is shown on a IRS Schedule C of your personal 1040 tax returns. One of the benefits of owning a home based business is most losses you incur as a sole proprietorship carry through  to W2 income.Example:  As a salaried professional making 75,000.00 a year, opens a small home-based business and has additional income from home-based business of $12,000.00 for first year in business, but the business also has a loss of $14,500.00. The $14,500.00 loss first goes against the income from the home-based business and then any difference will go against income from W2 wages. Thus reducing taxes normally paid on the W2 income. This is one reason many people venture into a home-based business is for the deductions. The home based business must be a legitimate business. The business must be run like a business not a hobby, and should show a profit some time during the first five years. I will explain in detail as we go through the process of becoming a legitimate home-based business.Step #1: Plan Ahead. Plan before you commit. Having a plan and knowing what you want to do and how to do it is the key initial step any business owner should adapt. By having a plan to follow will insure a more successful outcome than those without a plan.Failure to plan can cost you serious money and headaches in the future. Planning reduces financial risk as well as providing written proof if questioned or audited by the IRS that you are in business to make a profit vs. a business being worked as a hobby.  This will be discussed in detail later.Planning involves the following questions, ask yourself:What type of product or service do I feel comfortable marketing?Everyone feels differently about products and services. We all feel strongly about those that we can identify with, those that we believe in. Look for a company that has products you may be familiar with or feel strongly about. Do I believe in the products or services?Your conviction alone will help you sell. You need to believe in the product and the company, when you believe others will to!How many others are marketing the same product/service? What manner are they marketing them? This is a two fold question, first is the market already saturated with marketers of the product/service, if so is the company you are looking at innovative with their marketing plans and concept. Do you think it is a marketable concept?What is the start up cost?As a new business you can deduct up to $5000.00 in business start-up costs such as license fees, advertising costs, professional fees (accounting, attorney and tax professionals), office supplies and market research. Will there be future start up costs or ongoing fees?Cost for additional products, marketing material, training and/or inventory. Inventory is not a deductible start up cost. Marketing materials and training would be considered in the start up costs during the first year.How will the above costs be paid?Will they be paid out of future commissions, or are they to be paid immediately upon starting. Do you have the cash to put in to the business or will you need to use credit?What type of working environment do you need?Will a home office work, a cell phone vs. a land line. Do you need a standard office away from home? These are important questions to know the answers to before committing to a business. It gives you a better grasp as to the cost needed to get started.What type of supplies will I need?Examples of such supplies might be office furniture, a computer, a lap top, printer, fax, phone lines, supplies and such. We will discuss the use of Section 179 deductions for business owners, many of the larger items such as office furniture and new this year computers may be added to the Section 179 deduction. We will go into greater detail as we discuss deductions for business owners.How much will my supplies cost?Do I have the money now to invest to get started correctly? With the new computer deduction added to the 179 deductions it maybe the best time to purchase a new computer for your business.Do I need to carry an inventory?If so how much do I need to maintain my inventory on an on going bases.  If I do need to carry an inventory what is the shelf life of the product?Some examples, make-up with Mary Kay vs. an acai berry juice product, each have a different shelf life. Other products may have a timeless shelf life like jewelry products.Can I afford to pay cash for these products?If not is a credit card an acceptable means of starting my inventory.If starting with credit have a plan in place to pay off the credit so you may use it again and the interest doesn’t eat into your profits.Once you have a business you can identify with chosen you will need to consider what type of business entity do you want to b will be discussed in a future article.