DOH!!! Create a home office. Buy a cheap @ss desk and put it in your living room right next to the tv. Draw an imaginary 10x10 boundary around it and call it your office. Tada! Now your rent is deductable (well part of it anyway). You don't have to own to get all the nice home office deductions.
Sure you do. You give them what...$200 a month? And they give you a $50 a week allowance. Seriously though, why not get them a tax break then? Talk to a tax pro, but my wife rents our back yard a couple times a year to throw parties for her employees. You could also name them the nominal "CEO's" of your web empire so they can claim the write offs.
Yes, you need to pay taxes. If you put in your ssn, you can get a 1099 and it will be easier to track (for both you and the government...) If you don't pay your taxes ...? well, let's just say you don't want to go there ...
If you have any doubt whatsoever, call a tax professional. If you think that you might owe, then you probably do. The IRS is capable of finding this stuff. Good Luck.
I work from home - and have a dedicated 'office'. I claim a percentage of my electricity, gas, phone etc... and of course all my PC costs, ISP, hosting and domain fees. Just about everything I buy can be related to my business, PDAs, games consoles (I'm a gaming journalist! ), pens, paper, furniture... Go and talk to a clever accountant, they're not as expensive as you'd think. And if you get the right one, it can actually be fun playing the tax game.
My taxes at H&R block run about $1000 per year (which is also deductible), and that includes the taxes for my web business (using that term loosely), my wife's small business (3 employees), and my "real" 9-5 job. There are a couple of local firms that are cheaper than H&R, but my tax lady, Glenda, is scary smart about tax stuff. I call her Glenda the Good Witch. I probably have to pay extra for that though.
Any good or clever accountant will actually cost you nothing... they will make enough savings to cover their fee and gain you some additional income. I can't remember when I first heard the saying "a good accountant is free", but it is definitely applicable as if they know their stuff inside out and you are paying out enough money on things... the amout they save will normally offset their fees.