Part-time business income can cause tax trouble for wage-earners.

Taxes may be one of the last things anyone thinks about when starting a part-time business, but they ought to be high on the priority list for anyone who is serious about making money in a part-time venture.

Additional income from a part-time business means additional taxes, but those who wait until the end of the year may wind up paying penalties or not being able to take deductions they had counted on.

Anyone who expects to earn taxable income from a part-time business should make arrangements to pay taxes throughout the year, according to Keith Dolabson, senior tax manager with accounting finn Arthur Andersen LLP in Los Angeles.

One solution is for the part-time business owner to have his or her regular employer take out more withholding taxes, Dolabson said, while another option is to file quarterly estimated tax payments with forms available from the IRS.

Either way, he said, the part-time business owner needs to make some provisions for paying taxes sooner rather than later to avoid a big end-of-the-year tax bill or penalties for under-paying taxes.

Dolabson said one of the chief tax questions for many part-time business owners is whether they can deduct expenses for the business use of their homes.

"Writing off a home office is appealing, but the standards for qualifying are pretty high," Dolabson said. "The IRS in recent years has made it tougher to qualify for the home office deduction."

One of the recent changes, Dolabson explained, is that the IRS now requires that a home office be used "exclusively and regularly as a place of business to meet or deal with patients, clients or customers" in the normal course of the business.

The word "exclusively" is very important because it means any room or space designated as a home office must be used 100 percent for business in order to qualify for the deduction, Dolabson noted.

"Technically, that means if you have a home office where you also sit down and write personal checks from time to time, it doesn't qualify because it isn't being used 100 percent for business purposes," Dolabson said.

Keith Kimball, a spokesman with the IRS in Los Angeles, said that besides being used 100 percent for business, a home office must also be the principal place of business in order to qualify for the home office deduction.

Kimball noted that IRS Publication 587, "Business Use of Your Home," includes detailed examples to guide taxpayers in determining whether a home office is a principal place of business.

The examples point out that, although home office activities may be essential, the expenses associated with a home office still can't be deducted if most of the business is conducted elsewhere.

For example, a business owner who spends most of his or her time making sales outside the office does not qualify for the deduction, even if he or she uses the office regularly to set up appointments, work on business-related reports and complete paperwork associated with the business.

Kimball noted that the IRS does include one exception to the "principal place of business" role. It allows deductions for separate, free-standing structures, such as a studio or garage that is not attached to a home. In that case, the building does not have to be a place where the owner meets regularly with clients or customers. The building still must be used exclusively for business, but it need not be the principal place of business.

Once a home office does qualify under the IRS rules, according to Dolabson, business owners can declare two types of deductions direct and indirect expenses.

Direct expenses are for such items as supplies and equipment that are bought solely for the home office, while indirect expenses include rent, mortgage payments, real estate taxes, utilities and other items that apply to both the home and the office.

Direct expenses are 100 percent deductible, but only a percentage of indirect expenses can be deducted, based upon how much of an owner's home or apartment is devoted to the business.

For example, if an owner's home or apartment measures 1,500 square feet and the office takes up 150 square feet of that, the owner can declare 10 percent of rent, utilities and other eligible expenses for the home office deduction.

Dolabson said there are still some potential pitfalls, even for owners whose home offices do meet the IRS standards for the deduction.

One is that the office may not qualify for the entire deduction if the business doesn't generate enough revenue to equal or exceed expenses. Another is that a homeowner who sells his home at a profit loses the right to roll over the percentage of the profit that is attributable to the home office.

According to Kimball, the IRS spokesman, the agency provides a number of guides besides Publication 587 regarding these and other tax regulations that part-time business owners ought to know. In addition, the IRS offers free small business tax workshops through its education office at [phone].