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Running home business
means planning for taxes

WHEN you run your own home-based business, you have the freedom to chart your own course. But this independence comes with a lot of responsibilities. You've got to plan and save for your own retirement. You've got to take care of your own taxes. You've got to deal with business expenses. Consequently, you've got to learn how to make smart financial moves.

So, if you're contemplating striking out on your own, and you're going to be working out of your home, keep these tips in mind:

» Set up a retirement plan -- right away. As soon as you're generating any income, establish a retirement plan. A qualified retirement plan can pay off for you in several ways: Your contributions typically will be tax-deductible, your earnings will grow tax deferred and you'll have a variety of investment options. If your business has no employees except your spouse, you can choose from some attractive plans, including a SEP-IRA and an "owner-only" 401(k).

» Review your investments. Now that you're self-employed, you may need to adjust your investment mix. As you know, going into business for yourself is not a risk-free proposition; consequently, you may need to lower the risk level of your investments, or possibly adjust your investment mix to provide you with a greater income stream. Keep in mind, however, that you'll still need to have considerable growth potential in your holdings, particularly if you have many years left until retirement.

» Consistently set aside money aside for taxes. If you pay your taxes quarterly, as many self-employed people do, you don't want to scramble for cash every three months. So, every time you get paid, put away some money for taxes, preferably in a liquid vehicle, such as a money market account. Generally speaking, it's a good idea to set aside as much as 40 percent of your income. Even if don't need all that money at tax time, it certainly won't hurt to have it around. If you don't have enough liquid cash to pay your taxes, you may be forced to dip into your investments -- and that could slow your progress toward your financial goals.

» Keep track of all potential deductions. Be diligent about claiming all business-related tax deductions that you can get, such as percentages of your mortgage, insurance and utilities, office supplies, educational materials related to your work, etc. You can benefit greatly from working with a tax professional -- someone who can tell you exactly what deductions you're entitled to claim.

» Look for "group-buying" opportunities. If you are self-employed, and working out of your home, you can feel isolated. But actually, you're not alone; there are many other home-based workers out there, just like you. And if you can hook up with these people, you may be able to increase your buying power by obtaining group discounts on office supplies, health insurance and other necessities. You can find out more about these group-buying opportunities in magazines and Web sites devoted to entrepreneurs.

Running your own home-based business can be exhilarating -- and scary. But by making smart financial moves, you can lower the "fear factor" and devote more of your time and energy to making your business succeed.