My wife woke-up one morning, about three years ago, and announced, “I’m going to start a home business.” And sure enough, she did. Since its simple inception, our swim school has been able to generate more demand than we can handle. We now have a team of coaches and multiple locations where we teach.

I’m not saying any of this to brag, but to show that starting a home based business is much easier today than it’s ever been before. The Internet not only provides access to information, but it also gives you access to customers. The billions of searches on Google represent consumers looking for products and services.

The purpose of this post is to give you a basic overview of how to go about starting a home business.

Step 1: Generating ideas

Start by making a list of your hobbies and passions. You’ll find that business is much easier when you love what you are doing. Let me give you an example.

A neighbor of ours, Candice, tried to sell Mary Kay cosmetics and skincare. However, Candice doesn’t wear make-up or really care about make-up for that matter. Her only purpose in doing Mary Kay was to just earn extra money. The result – she failed. A few months later, Candice decided to open a business selling cake bites. The difference? She loves baking. Her husband has often complained that his spare tire around the waist is the result of always having baked goods in the house. This time, her business is going much better because she enjoys what she does. She’d make cake bites regardless of the business.

Once you’ve made a list of your hobbies, passions and interests, narrow the list down to some options where you think you can offer a unique advantage. Part of our success with swim lessons is because we are able to offer services not otherwise available in our area. There was a whole in the market and we have stepped in to fill it. So spend some time on Google and see what’s offered and not offered in your area or online.

Keep in mind that being competitive doesn’t necessarily mean offering something that no one else offers. But rather, a competitive advantage can be offering a product or service in a better way than anyone else or at a lower cost.

Step 2: Selecting your legal and taxable business type

Once you’ve decided what to do, you need to put a legal structure around your business. There are several options: sole proprietor, single member LLC, multi-member LLC, Limited Partnership,  S-Corp and C-Corp. Most home businesses are setup as LLCs. LegalZoom offers a brief comparison between LLCs and Corporations.

This is where you want to talk to a tax attorney or accountant. There are several factors that will affect the structure you choose, such as how much money you expect to make, how many people own the company, what are you planning to offer, etc. Spending a little money to set things up correctly from the beginning is worth the money.

The point is that you want to protect yourself and assets from lawsuits.

Step 3: Creating a legal, taxable business entity

There are basically three steps to creating a new legal, taxable business entity.

1. What’s in a name?
   First, you need a name. More importantly, you need a name that is available in your state. Or in other words, a name that hasn’t been registered by another entity. You can check your state’s Business Entity Search to see what is available.
2. Let the Feds know
   Second, you need to file for a Federal Employer Identification Number (FEIN or EIN). You can quickly and easily file online on the IRS’ website. You will need your FEIN before proceeding to the next step or setting up bank accounts.
3. File with your state
   Each state’s process is a little different. Though you will be required to create your Articles of Incorporation, which are the rules that govern the management of your company. There are some standard clauses, such as who are the managing members and what is your business address, but you can create business rules or articles that cover just about anything you want (as long as it’s legal). For example, if you are going into business with friends or family, then an article describing dissolution (what happens to the money and assets if your company goes under) is a very good idea.

On a side note, consider other legal requirements, such as a food handler’s permit, that you may be required to file. For example, a Sales Tax Id if you intend to resale goods. Again, this is where a good accountant or attorney can help you make sure that you are filing everything you need to.

In Part 2 of starting a home business, I will cover the next three steps, which are setting up bank accounts, keeping your accounting records, and marketing yourself.

For more money saving advice, follow Rabbit Funds on Twitter.

Dear Santa Claus,

First, let me say that I’m a big fan. Ever since seeing Tim Allen and Martin Short duel for your position, I’ve felt a renewed vigor and belief. So I thought I would drop you a line this year and make a few requests.

1) A fully funded 401(k)

I’ve tried to be a good boy. Before my company was spun off in the 2nd quarter, I diligently contributed to the company 401(k), despite the terrible array of investment options. But since the spin-off, we haven’t had a 401(k). In fact, Prudential is now sending me letters telling me to roll my 401(k) over to someone else. Apparently, I don’t have enough money for them. So I would have kept contributing if I could have. So will you please fully fund my 401(k) please? Don’t worry about the company match.

2) A Roth IRA for the wife

Once our 401(k) disappeared, I started making contributions to my Roth IRA. Unfortunately, my wife still does not have a Roth IRA. Having a shiny new Roth IRA at, let’s say, Vanguard with a couple of index funds would be great. Just something to get her going. She’s running her own business though, so maybe a SIMPLE IRA would be better. I’ll let you decide. I mean, you seem like you are pretty financially savvy. You’d have to be to finance the production of million of toys each year.

3) Better health insurance

Since I’m talking about my job, our health insurance isn’t that great either. I know that I should just be grateful that we have health insurance, but can you really call a $5000 deductible insurance? For example, my wife has scoliosis and had started going to the chiropractor regularly since the pain was increasing. She was just making progress when I had to tell her that she needed to stop going for at least a couple of months. We simply have no way of paying for her to go twice a week. I’m willing to do my part to earn some extra money, but a better health insurance plan would go a long way.

4) An emergency fund

As I’m sure you are aware, I’m currently studying to take the GMAT this Saturday. Realizing that I needed some extra help, I signed up for the Kaplan Advanced GMAT prep course, which I highly recommend to any of the elves looking to change careers. Paying for the GMAT, the prep course, two new tires, and medical bills has depleted our emergency fund. So maybe I’m pushing my luck, but a replenished emergency fund would make sleeping at night easier. Think of the children.

5) Dems to sign-off on tax cuts

I was planning to ask for extended tax cuts as well, but it seems that President Obama and the GOP have decided to give us an early Christmas present. I was just hoping for the extension, so the Social Security tax cut, the equivalent of a 2% pay raise, was a very pleasant surprise. Though, the Democrats need some persuading. So maybe you can threaten them with some coal.

6) Maybe an up-swing in the housing market

Last, but certainly not least, is there anything you can do about this housing market? Our home is two years old and we are underwater. Hoping that we were just a little underwater, we had an appraisal to find out what our home is currently worth. I think I was better off not knowing. What’s really frustrating is that we are responsible and our irresponsible neighbors who bought a home they couldn’t afford have caused home prices to drop. So maybe you could just leave Dave Ramsey’s Financial Peace University under everyone’s Christmas tree this year.

As you can see, we have a number of financial goals and challenges that we are facing as 2011 draws near. And although I’m gainfully employed, my pay just doesn’t quite cut the mustard.

Anywho, I’ve rambled enough.

Thanks Kris (can I call you Kris?)

Adam

P.S. A couple shares of Berkshire Hathaway would be cool too, but whatever.

April 15th is near and taxes are due. 2009 paperwork is being rummaged through, and Americans are working hard to get their taxes ready.

Paying taxes can put a big dent in our collective wallets, but a small percentage of people are going to come out owing more than they can actually afford (ouch!). So what happens if you truly cannot pay your tax debt?

This is a tough situation for anyone to be in. But like any difficult problem, there is always a solution. One thing you need to remember is that you should never just ignore your tax problems. A small or medium size debt could snowball into a huge problem that could even land you in jail. Also, the penalties for not paying your taxes and not filing your taxes are completely different! You will owe MUCH more for not filing, than if you simply can’t pay what you owe. Whatever you do, ALWAYS file your taxes.

A new trend among people that are having tax problems is to turn to their trusty credit cards. But, this might not be the smartest thing for someone who already has a debt problem. It depends on your history with credit cards and your current income. If you have a habit of not paying your bills on time, you might want to reconsider. Creating a credit card debt problem to replace a tax problem might just be digging yourself into an even deeper hole. But, if you have a steady income and the cash flow problem is just temporary, it might be worth it (only if you can pay it off quickly). Just make sure that you have repayment plan in place. You don’t want to let that interest grow into something you can’t afford.

What are your options if you don’t have the cash?

If you a facing financial problems, you might be able to negotiate a payment plan with the government. If you have less than $10,000 in tax debt you can fill out Form 9465 to set up an installment plan. The government may or may not agree to this. After you send in this form an IRS agent will evaluate your finances. If they believe you are truly having financial trouble, then they will most likely approve you for this installment plan. But keep in mind interest and penalties will still apply.

Now if you are really in financial hardship and an installment plan is still too much, the government may accept a reduced payment. This is called an “Offer in Compromise”.

To qualify for an Offer in Compromise you need to complete Form 656 and Form 433A. You will need to send complete records of your finances and an agent will decide if they will accept a reduced rate. The criteria for you to qualify for this compromise depends on the financial records you submit. If they believe you cannot pay the full amount, the amount due is incorrect, or that there are other special circumstances they might grant an “Offer in Compromise”. But keep in mind the IRS is tough, and they only offer OIC’s to people whose finances are in very bad shape. When you apply for an OIC, you admit liability of the tax debt. This will make it very difficult if you want to protest it later on.

Hire a CPA or Tax Attorney

There will be extra fees if you get outside help, but its possible that they may save you more money in the long run. A CPA or attorney will have much better knowledge of the tax laws, and may be able to work the system better than you could by yourself. But like with anything else, you need to shop around for the right company or you could get burned. Just like other areas of the debt settlement industry, these companies tack on fees that can add up quickly if you choose the wrong company. Make sure you read the terms of your agreement very carefully before you sign.

If your tax debt is greater than your income can afford, you need to handle it quickly. Remember that interest on your debt is always adding up. You can take the “do it yourself” route or hire a professional to help. There is also a lot of information on the Internet to get you started. Begin your research at home, then make some calls. It doesn’t hurt to call a tax professional just to pick his or her brain and get you moving in the right direction. The more you learn about the process, the better your outcome will be, and hopefully you’ll pay less in the long run.

About the author: This is a guest post by Garrett Driscoll from Debt Eagle. Visit his site if you are having debt problems or need information about bankruptcy, bad credit, or collector issues.

If you’ve been wanting to take advantage of today’s historically low mortgage rates, now is definitely a good time. The popular home buyer tax credit has recently been extended by Congress.

The program is now being offered to all eligible home sales occurring between January 1, 2009 and April 30, 2010. In addition to the previous $8,000 refundable tax credit available to first-time home buyers, the extension includes a new provision offering a $6,500 credit to homeowners looking to relocate provided that they have lived in their current residence for a minimum of five years. It is important to note that the provision for the $6500 tax credit only applies to homes purchased after Nov. 6th 2009 and is not retroactive.

Income limit provisions

In addition, Congress has increased the income limits for the program. To qualify for the full $8000 credit, individual taxpayers cannot make in excess of $125,000 and joint filers cannot make more than $225,000. The limits under the previous credit were $75,000 for single filers and $150,000 for joint filers. However, there is still a possibility for you to qualify for a partial credit if you make slightly above these amounts. The credit is ruled completely out for single home buyers with incomes above $145,000 and $245,000 for joint filers as well as for homes bought in excess of $800,000.

In addition, applicants cannot have owned a home as a primary residence within the last 3 years and are required to stay in the home that you are purchasing for an equal amount of time. If you sell your home within three years of the date of purchase you will be required to repay the full amount of the received credit. Also, you cannot claim either credit if you inherited or were gifted a home from a family member or loved one.

Necessary paperwork

Receiving the credit is easy- simply claim the eligible amount via form 5405 on your tax return for 2009 or file an amended return for 2008. No additional forms or paperwork are necessary. Also, depending on the lender, you can now apply the credit as a down payment on a mortgage loan.