Online Incorporation MaxBlog

Many of the reasons you decided to start a home business are apparent: you can set your own schedule, work in your comfort zone and save yourself the cost of renting office space.

Another benefit that should not be discounted, however, is the ability to deduct many of your expenses. Be careful of going overboard with these deductions, lest you find yourself on the wrong side of the IRS.

At the same time, though, knowing the common home office tax deductions can help you preserve your small business budget.

1.            Utilities

This will include a percentage of your utilities, based on how much of your home is used exclusively for business. Exclusive is the key word here. Part of the dwelling must be set aside for business use only, so working on a laptop at your kitchen table does not qualify.

2.            Household Repairs

If your business involves customers or clients regularly visiting your home, you may deduct a portion of household repair and maintenance costs as a small business expense.

3.            Rent and Mortgage

Both homeowners and renters can take advantage of these deductions, provided at least one room in the dwelling is set aside for the home business.

4.            Insurance

According to the IRS, if your home is your “principal place of business,” a portion of your homeowner’s or renters insurance cost is deductible as a home business expense.

5.           Your Car

If you use your personal automobile to travel to business meetings or make deliveries, the cost of upkeep, insurance and gas can be deducted. Be aware, however, that if the automobile is also used for non-business purposes, you will need to track your business-specific mileage, and only that percentage is deductible.

The importance of providing true and valid usage of your home and automobile for small business purposes cannot be overstated. IRS audits can and do happen, and should you find yourself on the receiving end of one of these, the auditor will expect to enter your home and see proof that you have a least one room dedicated to your home business.

As long as you are honest, however, you can successfully save a portion of your small business budget by using the appropriate tax deductions.

Right now the folks at fitness wristband manufacturer Energy Armor are likely wishing they had hired a business incorporation service, or at least done a trademark and patent search.

Instead, they began selling and promoting their wristbands with a logo that video game fans will find eerily familiar. It bears a striking similarity to the familiar “EA” logo used by Electronic Arts, makers of a number of high-profile video games, many of which are sports-centric.

Electronic Arts has been in the business of making video games since 1982, and has been using the current logo since the 1990’s. EA Sports, one of the company’s largest and most well-known divisions, makes games that run the gamut from football to basketball to golf. It’s the sports connection that most concerns Electronic Arts.

The connection is far from tenuous. Some sources, including video game industry blog Gamasutra, suspect that Energy Armor’s marketing ploy is very much intentional (http://www.gamasutra.com/view/news/37686/EA_Sues_EA.php). Purposeful or not, Energy Armor is suffering the consequences of their choice. After receiving no response to their requests that the acronym-sharing fitness company stop using such a potentially confusing logo, Electronic Arts decided to pursue the matter in court.

Energy Armor has apparently applied for a trademark for their version of the logo, but that application is still pending. This fact didn’t stop the wristband manufacturer from using the logo in advertising and on products.

Did Energy Armor perform a trademark and patent search? If so, did they simply choose to ignore their own logo’s similarity to the existing trademark? Worse still, are the suspicions of those who believe this was intentional trademark infringement correct? These questions may be answered in the upcoming court battle, but there is no question about the fact that Electronic Arts intends to come out swinging.

Among the demands: that Energy Armor destroy all items bearing the current logo and pay Electronic Arts damages for the high cost of correcting misinterpretations made by customers who believed there was some connection between the wristbands and popular Electronic Arts games.

Intentional or not, Energy Armor’s mistake could end up costing them.

While they may be forced to learn their lesson the hard way, new startups can certainly benefit from this example of what not to do. Skipping a trademark and patent search or ignoring the results can only hurt a company’s future success.

Business incorporation services exist to help fledgling businesses avoid this type of catastrophe. The decision to start a business rather than rely on an employer for income already carries its fair share of risk. Compounding that by failing to tend to every legal detail is both dangerous and unnecessary.

The business world will certainly be watching as the case of Electronic Arts versus Energy Armor unfolds. The importance of securing a business incorporation service to avoid going down Energy Armor’s path is likely to be only one of many lessons learned from this debacle.

Naming your new business is probably the biggest decision you will make about your budding enterprise…it’s what the world will know and remember you as so you want it to be practical and memorable too.

And you will want to spend some time thinking about this too – don’t simply go with the first thing that pops into your head or your gut instinct. Chat it over with friends, do some research and come up with several ideas before making a decision.

Before doing any of this though you may want to do a trademark/name search to find if there are any other businesses out there using that name. You would hate to go through this arduous process just to find out that someone already has that name and has trademarked it.

Incorporating a business with a trademarked can be a costly mistake – at minimum you will be forced to change names and incur all expenses with doing that.  Next, you could be sued by the trademark owner and if you use a federally registered trademark improperly, you could really be in trouble. In this instance, a court will assume you knew the name was federally registered and consider you a “willful infringer,” meaning you could be put on the hook for large damages and the owner’s attorney fees.

If you choose to incorporate a business online with MaxFilings, we do a preliminary name check as part of our online incorporation process.

However, save yourself the trouble before hand when you’re deciding on what to call your new venture and do a quick trademark/name search (U.S. Patent and Trade Office) for your new business or products and also do some general searches on the Internet to see how the name is being used. You can also use a fee-based service like Thomson’s SAEGIS database.

Whatever you do, look into it…it will save you in the long run.

Now that we’re into the New Year, it’s time to think about your tax strategy for 2010. And this could be one of the craziest years to try and plan a workable strategy – but no matter what Congress does, you can take some useful precautions to minimize the impact of your tax bill on the bottom line.

One highlight of this year – the estate tax is supposed to go to 0% for this year. President Obama though is opposed to this move and is pushing for the rates to be set to levels comparable to recent years.

The American Recovery and Reinvestment Act provided some great tax breaks for small businesses in 2009 such as larger first-year and bonus depreciation tax write-offs. Expect some of these to be extended into 2010.

Bonnie Lee, a tax expert with Entrepreneur.com says “who knows what’s going to happen” but added that taxes are likely to rise, especially if the proposed healthcare legislation passes.

In spite of the uncertainty, Lee suggests a few prudent steps you can take to minimize your tax bill. These include:

• Do what you can to reduce taxable income – contribute to a health savings account or make charitable donations. Contribute the maximum allowance into your IRA or 401k.
• Develop better strategies to track your expenses. Buy a mileage log and develop company-wide strategies to track all expenses. You’ll need all the deductions you can get.
• As stay on top of all the changes that go on from year to year so if you haven’t used one in the past, consider hiring one.
• Set aside money each month for your tax bill that will be due in 2011. You can probably bet your 2010 taxes will be higher than 2009 so be prepared.

Taxes for small businesses are unfortunately a fact of life so we need to stay proactive so we don’t end up paying more than we should.

Learn more about some of the federal taxes small businesses are subject to in our online incorporation knowledge center article on the subject. And if you’re thinking about making the switch to entrepreneurship in 2010, consider incorporating your small business online with MaxFilings.

While perusing online the other day in my daily ritual to find out what’s happening in the world, I came across this article in Foreign Policy about a topic we recently wrote extensively about in the online incorporation knowledge center at MaxFilings.com regarding microloans.

President Barack Obama recently awarded the Presidential Medal of Freedom, the nation’s highest civilian honor, to the pioneer of microloans Muhammad Yunus. In the ceremony at the White House, the president commended Yunus for “[unleashing] new avenues of creativity and [inspiring] millions worldwide to imagine their own potential.”

Establishing a micro-bank in Bangladesh, Yunus demonstrated how very small loans to the poor can not only be repaid, but generate new entrepreneurial ventures and create jobs, etc.

But critically looking at Yunus indicates some shortcomings with his ideas…not that they are bad, but they do not deliver the results, as is often claimed, to lift the world’s poorest out of poverty.

First, implementing something this massive would be tremendous. Approximately 4 billion people in the world live in poverty – $17 billion was loaned through microfinance in 2004, which is peanuts when considering how to end poverty.

Another problem is that microfinance is generally heavily subsidized – private micro-banks and finance organizations generally charge very high rates of interest. A micro-bank in Mexico charges 100% for example, which makes it not feasible for the poor.

The article goes on to suggest other ways to alleviate poverty and provide the financing for someone with limited means to form a corporation. The author’s uses the best of both Yunus’ and economist Hernando deSoto, who proposed in his book “Mystery of Capital” that poor people across the world have close to $9 trillion in frozen assets.

Read a $9 Trillion Question at Foreign Policy for more.