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Home Business Taxes - Make it Easy on Yourself
If you have recently started a home business, you’re probably a little intimidated by having to submit a tax return and the possibilities of being audited. Simply follow these guidelines and rest assured that filing your next tax return will go smoothly. o You will need to file a Schedule C or Schedule C-EZ with your Form 1040 for your home business taxes. o You need to pay Self-Employment Tax (social security and Medicare tax, similar to what’s withheld from the pay of most wage earners). o You must also pay Estimated Taxes (the method used to pay tax on income that is not subject to withholding....if you don’t make quarterly payments, you can be penalized for underpayment at the end of the tax year). But first things, first....to determine your legitimate deductions, you need professional guidance and advice. I recommend finding someone who adopts an aggressive approach to planning, enjoys the professional and intellectual challenges of knowing the “fine line”, and can bring you comfortably close to it without going over. In the meantime, here are some basics to get you started organizing your home business taxes. If you're running your own home based business and you want tax time to go smoothly, keeping track of your expenses is job one. Best bet....keep an accounting ledger book handy (you can get one at any office supplies store for less than $10. - Keep your receipt....it's tax deductible!).
Tax Saving Tips - 10 Ways to Stay out of Trouble1. Keep good records for your business, and keep your home business taxes separate from your personal stuff. Keep your records for several years after you file in case the IRS questions you in the future. Keep you business and personal banking accounts separate. Note – bank fees are tax deductible. 2. Track your business mileage. Keep a mileage tracking sheet in your car. I keep a simple spreadsheet in my glove compartment and jot down my start and end mileage for each business errand. At tax time, I transfer the total into my ledger book and hold on to the spreadsheet in case I need to substantiate the figures at a later date. 3. Keep records to substantiate your travel and entertainment expenses. You don't have to keep receipts for expenses (other than lodging) of $75 or less but you must diarize the expense in your ledger book, noting the date, the amount you spent, and the business purpose for the expense. Remember, you can only claim 50% of entertaining and food expenses as a deduction for your home business taxes. 4. Especially if you’re operating a part-time business, make sure to run it in a business-like manner. If it incurs a loss, you need to be able to prove your profit motive in order to deduct the loss from your taxes. Be especially careful if your business claims to be losing money more than three of five years. (The IRS is on the lookout for people writing off hobbies in the guise of businesses. 5. Use your retirement planning to reduce current taxes. (If you have not yet set up a retirement plan, consider a Keogh, SEP, or SIMPLE plan to put more away on a tax-deductible basis than you can under an IRA.) Consult your tax advisor and retirement planner for advice. 6. You may qualify for deducting business expenses related to using a portion of your home for your business. You can claim the portion of mortgage or rent payments, utilities costs, maintenance costs , etc. prorated by the percentage of work space to the total square footage of the home. (Be careful with this as it is commonly challenged by the IRS.) 7. If you pay family members to help in your business, make sure the payments are reasonable and that they are properly structured to avoid audit problems. 8. Don’t forget about depreciation - office furniture and equipment should be depreciated over time. 9. Make sure to deduct your business insurance premiums. 10. File your taxes on time or get a filing extension to avoid interest and penalties.
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