I have owned my own business before this shopping thing. I was also a certified tax preparer and worked for H&R Block. Always report all your income, don't get caught in an audit. As the others said, deductions make all the difference in the world. Keep receipts and good records and a business ledger that shows what you spent in expenses and what you made....debits and credits. Keep a milage log for gas credit in your car and enter it in your ledger monthly. You can deduct only percentages of home computers, phones, faxes, and your "office space" square footage devided by your rent or mortgage. You can use that same percentage for electric, also. It is a very small percentage......don't stretch, they get suspicious! The other guy is also correct, only a three year loss. When I did home daycare, I never "made" more than a few hundred a year after deductions. Not much tax on that! LOL! The IRS has great stuff for small business--IRS.gov, small business. I hope some of this helps.