Owning your own business qualifies you for a whole slew of valuable tax savings by turning spending into tax-deductible expenses. You'll be able to write off much of such work-related expenses as rent, auto costs, travel, and entertainment, even vacations. Your lower tax bill can easily amount to $3,000, $5,000, even $10,000 a year in savings.

Each and every tax saving divulged here is 100 percent legal. Owning your own business gives you the opportunity to convert many expenses that would ordinarily be nondeductible personal expenses into tax-deductible business expenses.

1. DO YOU WORK AT HOME?

If so, you may qualify for a whole host of valuable tax deductions. Deducting a portion of your home or apartment expenses as tax-deductible business expenses is one of the most significant benefits of owning a small business. By operating from home, the following home-related expenses can become deductible:

n You can deduct a pro-rated share (based on the percentage of rooms or total space used for business purposes) of your household utilities, property insurance, homeowners insurance, property tax, mortgage interest.

n You can deduct a portion of your total maintenance costs, maid or cleaning service, house painting, rewiring, roof repair (except for repairs or remodeling of specific portions of the home, such as kitchen, that have no bearing on the home's business use).

n Depreciation of office furniture, equipment, lamps, desk, chairs that you put in your office. 

n When you buy equipment and supplies, save your receipts. All business equipment up to $17,500 a year-including computers, typewriters, fax, copier, answering machine---can be written off each year.

To qualify for a home-office deduction, the area must be used "exclusively and on a regular basis" as the principle place of your business. (Tbe use of a portion of your home office space - such as a den - for both business purposes and personal purposes does not meet the "Exclusive" use rule.) If you have an empty bedroom now that the kids have moved out, or an empty basement, you can run your business from there and get these deductions on your income tax, provided you use the space exclusively and regularly as your regular place of business.

Because this deduction is so valuable, the Internal Revenue Service may question it. So be sure to keep good records. Photograph the office. Keep a log of the work you do there, of whom you see or call when you use it. Use this address on your business cards, stationery, bank accounts, yellow page listing.

2. LET THE I.R.S. PAY FOR HALF YOUR AUTOMOBILE

Of course, you'll use your car for business purposes. This is another personal expense you can largely convert into a business deduction. If you use your auto in your business and you use it exclusively for that purpose, you can deduct the entire cost of its operation including gas, oil, repairs, insurance, interest, taxes, parking fees, tolls, registration, AAA dues.

If you use the auto for both business and personal purposes, you must divide your expenses between business and personal use.

You can apportion the costs on a mileage basis (for example, say you drive 15,000 miles a year - 10,000 for business, 5,000 for personal use. You can deduct 67 percent - 10,000/15,000% --- of the costs). Or you can apportion its use on the basis of how many days you use the car for business each week (for example, 5 business days use each week allows you to deduct 71 per-cent - 5/7% --of the costs). The latter is the simpler method. Keep accurate records of your costs.

n The I.R.S also lets you deduct depreciation. Vehicles have less value each year as they depreciate. If the car is for personal use only, tough! But if you use it for business, you get to deduct the depreciation of its value as a business expense.  The exact amount is set by the I.R.S. If you use the car for both business and personal use, you can deduct the percentage of the depreciation allowance based oil the allocation between business and personal use.

3. HIRE YOUR KIDS

As a sole proprietor, a simple way to lower your total taxes is to split your income with family members by employing them in your business and paying them wages. The employment must be bona fide and the salaries paid must be reasonable for the services per-formed. Even a young child can be employed for such services as cleaning your office, opening mail, mailing letters.

n When hiring your children, the biggest tax break is that wages paid to a child under the age of 8 are exempt from social security and medicare taxes. This means that you can deduct the wages you pay to your children from your income without the added expense of paying the approximately 15 percent social security and medicare taxes on their compensation. The work may be full or part-time, or even done only during their summer vacations.

n A second big savings is possible because a dependent child with earned income pays zero income taxes on the first $3,700 of earned income. This means if you hire each of three minor children part time and pay each $3,700 for their services, their taxes are zero, the money remains in the family unit, and your total savings in federal, state, local income taxes, and social security and medicare taxes approaches 50 percent of the total $11,000 wages: About $5,550 saved.

n In addition, another $2,000 could be paid tax-free to each child if placed in an IRA retirement account. This produces another potential $1,000 family-unit tax saving for each child you do it for. Keep good records or a journal to document wages (pay by check only!), hours worked. No records means no deductions.

4. LET THE I.R.S. HELP WITH MEDICAL EXPENSES

n Until 1994, the bureaucrats at the Internal Revenue Service gave the small business person a break by allowing you to deduct 25 percent of the cost of health insurance premiums. This deduction lapsed in 1994, but Congress renewed the deduction for and since 1995.

n The I.R.S. gives you another break. Ordinary taxpayers get virtually no deductions for ordinary medical expenses. But there is a way as a business owner you can deduct 100 percent of both health insurance payments and medical expenses. You do this by hiring your spouse.

Have your insurance agent install a written medical reimbursement plan and medical insurance for all your employees (even if there is only one -- your spouse). You as the business owner are not covered. But by hiring your spouse, he or she as an employee is covered. And by having the plan drawn up to include each employee's dependent children and spouse -- which includes you as a spouse--your medical expenses and insurance would be covered as well. Keep records to show that your spouse actually worked for your firm.

5. INCOME SHIFTING

That time-honored maxim of tax planning, that a tax deferred is a tax avoided, holds true for most taxpayers. This means you should accelerate deductions into the current year, while deferring income into the future. As a small business person, you have the opportunity to do such income shifting.  .Many business owners, for example, postpone depositing December (and even November) revenues until January so as to reduce income for the current year.

Similarly, you can accelerate expense deductions. You can even charge items to a credit card this year, even if the bill is not paid till next year. (However, this expense cannot be made on a credit card issued by the company supplying the goods or services charged, such as a Sears card.)

* One additional tax tip - When going into business, postpone as many start-up expenses as possible until you are actually in business and the business is off and running, because many expenses are not deductible unless you have a going business.  So postpone buying furniture, equipment, stationery.

6. DEDUCT YOUR HOBBY AS A BUSINESS EXPENSE

You can convert certain personal hobbies into tax deductible businesses. Photography. Painting. Stamp collecting. To name a few. To do this, you must run your hobby enterprise as if it were a business intended to make a profit, even if this expectation of profit is not reasonable. The I.R.S. says you have to make a profit in three out of any five consecutive years. But even if you don't meet this standard, you can still take deductions by showing that you really want to make a profit.

To accomplish this, give  your hobby the image and appearance of a business.  Give it its own separate business identity with its own business checking account. Keep good books and records. Use pre-printed business cards and stationery. Have a separate yellow pages listing for the hobby-business. Advertise. Hire experts and advisors when necessary. Show that you devote enough time to the activity to indicate you are serious about the money-making aspects of it.

7. DEDUCT EDUCATION COSTS

As a business owner, you have the opportunity to get some additional education and to charge the costs as a business expense. The I.R.S. allows you to deduct education costs taken to improve and sharpen the skills needed to run your business. You can also deduct related expenses -- course fees, books, lab fees, even travel expenses to take the courses. These deductions even apply to correspondence courses, and lessons given by a private tutor.

However, if you are taking courses to change careers or qualify for a new trade or business, the costs are not deductible. Often, though, you can overcome this obstacle by proper planning and scheduling. If you plan an becoming a travel agent, for example, and want to take courses in this field, get a part-time job with a travel agent first. Then your courses would be deductible.

8. TAKE A TAX-SUBSIDIZED VACATION

Why not let the I.R.S. pay for part of your vacations. Travel costs are deductible expenses if they are "ordinary and necessary" for conducting your business.  So trips to conventions, trade shows, seminars, meetings with important clients, suppliers, business associates, are allowable deductions.

And the I.R.S. does not prohibit you from combining a business trip with a vacation as long as the trip is primarily for business (proven by showing that more days, even if just partial days, were spent conducting business then were spent sightseeing or shopping). Travel costs, hotels, 50 percent of meal costs, cleaning and laundry, incidental expenses, are all deductible.

* So why not schedule your next vacation to coincide with a trade show, convention or with meetings with an important out-of-town buyer or supplier. If you subcontract manufacturing to a factory in Orlando, for example, arrange for the manufacturing to be done during your vacation in the area. Or arrange to vacation in New York or Los Angeles when a trade show in your field is being held there. Keep accurate records and schedules of who you saw and when. Save receipts.

* Generally, if you take along your spouse, he or she is not deductible unless the spouse actually works in your business and has a legitimate reason to be at the convention (such as to leam new techniques relevant to his or her regular duties in your business, or if the spouse is required to socialize and entertain your business associates and their spouses).

n Tip: If your spouse is not deductible, write off the cost of what a single room would have cost you (say $80 a night), rather than half the cost of the double room you actually stayed in (half of, say, $100). This gives you a larger deduction.

9. MEALS WITH CLIENTS ARE DEDUCTIBLE

Fifty percent of the cost of dining and entertaining a client is deductible if business is discussed directly before, during or after the meal. This means you must keep a record or diary specifying the restaurant name, amount spent, date, who was there, relationship of the guest to your business activity, and what the business discussion consisted of. All supported by documentary evidence and receipts.

n Following these rules, you can even go out with friends and relatives and pick-up the tax-deductible tab, as long as you can show that fellow diners are or could be potential customers, and that you discussed business matters right. before, during, or after the event. But be careful not to show any regular pattern of exchange where you and friends alternate days or weeks on which you and friends pick up checks.

n You can even write off small parties at home if you discuss business with each guest or make some business announcement or presentation, and your guests are employees, clients or potential clients. Keep careful records of who attended, the business relationship of each guest, and what was discussed.

n Another benefit worth mentioning: If you have a home office that requires a secretary or receptionist to be present at all times during business hours, and the only person available is a member of your family - say, your spouse -- whom you hire as your secretary, the I.R.S. allows you to deduct the value of any meals furnished to an employee by the employer for the convenience of the employer, if such meals are furnished on the business premises.

The tax code specifies that such meals are not counted as taxable income by the employee. So any meals provided (for instance, lunch) are not included in your spouse-secretary's income tax. But they are a deductible expense for you as the employer. Five dollars per lunch daily would give you a yearly write-off of  $1,250, saving you about $625 in income and social security taxes.

10. SET UP TAX-DEFERRED RETIREMENT ACCOUNTS

The big-hearted boys over at the I.R.S. allow a business owner to set up a tax-deferred pension plan ("Keogh" plan) that lets you shelter income from taxes while building a truly sizable retirement fund. Both annual contributions and interest are tax-deferred until post-retirement distribution when presumably you'll be at a lower tax rate.

Under certain circumstances you can shelter up to 25 percent of income. If you have employees, you must set up and contribute to similar plans for them. As a self-employed person, you can shelter income in a Keogh account even if you hold a job and are covered by your employer's pension plan.

If you shelter $10,000 each year in your Keogh account, and it earns 7 percent interest, by the miracle of compound interest in 25 years your account would total $703,201.

n In addition to the Keogh plan, under certain circumstances the I.R.S. lets you individually shelter up to an additional $2,000 a year in an Individual Retirement Account ("IRA"), $2,250 a year if you've got a non-working spouse, $4,000 a year in a two-breadwinner household.

FINAL WORD

This report is not a tip sheet to cheating on your taxes. Rather it is a guide to legally beating the Internal Revenue Service by showing you many of the tax deductions that are available to you when you own your own business. Most tax filers, including small business owners, never get audited. So be bold in taking your legally allowable deductions.

This is not to say to "doctor" your deductions or "pad" your expenses. But if you take liberal of even questionable deductions, follow this advice from a top tax-avoidance expert: Try to have a plausible excuse or cover for everything you put on or leave off your tax return.   Remember, there is no such thing as too much documentation. Always get receipts. Keep records, records, records. Always have a qualified tax accountant do your returns. And because of new rules each year, check with your tax advisor to see if there have been changes in specific deductibles.

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