Home Based Business Tax Concerns

Are you a new home based business entrepreneur with a concern for your taxes? Wondering how to do home based business taxes? You are definitely not alone. Many new home based business owners find themselves in a new category of taxes which can be pretty bewildering. Schedule C which is the IRS (Internal Revenue Service) Profit or Loss from a Business and Form 8829 which is Expenses for Business Use of Your Home are the two main forms used by home based business proprietors. Even the best home based businesses have tax questions and concerns. 

In addition to the two main forms used by your accountant for filing your home based business taxes, you will usually set aside a portion of your earnings or revenue earned throughout the calendar year to pay your home based business taxes. Your home based business taxes will include any local or city tax, state taxes and federal income taxes.

One of the nicer aspects of regular full time employment with a boss is your employer has the responsibility and requirement to withhold money from your salary or paycheck and send it to the government to pay your taxes. When you own your own business and become your own boss you are responsible for the task of taking care of your small business taxes for a home based business.

The amount of money that needs to be set aside or withheld depends upon your income or what you bring in during the calendar year, plus small business deductions and tax credits your allowed to claim that offsets your tax bill or income taxes owed and the end of the year. This amount will vary widely among different types of business as well as those within the same niche. There isn’t a standard guideline to follow that will actually fit the vast differences in home business owners. You will notice that even within your own home based business there is a variation from year to year with your small business tax write offs or small business tax credits. Overall there are variations with your small home based business taxes. Sometimes that disparity is slight while other times it can be substantial for each year.

To make certain the right amount of money is deducted or set aside for business tax purposes and avoid any unpleasant surprises at tax time you can try a couple of different things.

• ·         The IRS does have a website that may offer some assistance. There is a withholding calculator on their website that can help you define how much money should be set aside for federal tax purposes for small home based businesses.
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• ·         Enough cannot be said about a great accountant that handles your small business tax finances. This is a wonderful source for information as well as advice on withholding amounts for federal taxes as it relates to your individual small business situation. The account will be making a best guess estimate, but has enough insight and material garnered from you that a rough estimate is thorough in addition to being more accurate. An accountant will know what questions and issues may arise for you personally as it relates to your home based business tax deductions, expenses and answer any questions you may have.

This is strictly general information and you should always seek the advice of a tax professional when requesting detailed and in depth material as it relates to your home based business taxes. However, this is providing a high overview of what you can expect as a home based business owner. 

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Keep Accurate and Detailed Records for Your Home Based Business

Keeping records accurate and detailed are important for a home based business to be successful. When you own your own company many responsibilities that you may not have had before are now yours as a home based business owner. Many of these responsibilities are critical to even a small business. Keeping the right records for your business includes keeping track of the following paper as a new business owner;

Receipts

Keep all of the receipts for purchases that you make for your home based business. These purchases include office supplies and equipment from paper clips to PCs. As a small business owner you need to keep copies of all of the bills related to running your business day in and day out. These include bills paid for internet and cell phone service, membership fees and other costs related to keeping your home based business running.

Rent, mortgage interest and utilities

These are the bread and butter that many small business owners running their first business from home overlook. Home based business expenses related to your rent or mortgage interest and utilities may be deductions for tax purposes.

Save cancelled checks and paperwork related to paying for these fees and find out from your CPA or tax professional how much of any of these can be deducted for tax purposes.

Advertising expenses

Easily overlooked as one of the most tax deductible receipts for your business is the advertising monies you spend. Visit with your tax professional before you do your taxes or put the monies out there to find out if you can deduct the advertising costs for your home based business.

Professional fees related to your business

Some professional fees related to your business can be deducted for tax purposes. If you hired a professional to perform business related professional work such as a website designer you may be able to write these services off as business related expenses or small business tax deductions.

Expenses related to attorney fees, accountants or consultants for any home based business entrepreneurs are all related professional fees for your small business or home based business.

Employee records

If you have employees that work for your company any paperwork related to them should be kept. Records related to their work schedules, hours, evaluations and all else should be retained. Many times this information is needed to calculate salaries, home based business taxes and w-9s that are sent to them at the end of the year.

OSHA records

OSHA records are for those employers that have more than 10 employees for their home based business. OSHA will advise each employer individually what records they would like you to keep relative to your employees. These usually include any accident reports, time elapsed without an accident and other types of records related to your home based business employees health, welfare and safety.

Accounting

These are the most time consuming records for owners of home based businesses. Copies of any and all transactions that have been processed should be kept. Many employers need these records specifically to prove your income and may be requested at any time by the IRS or other similar agency.

Starting a home based business may seem like a daunting task, but for many that have tried and found success it is definitely worth the effort. Remember that if you are dealing with your taxes and deduct anything you need to be able to prove the deduction which means that keeping accurate and detailed records is imperative for any small business or home based business owner.

Start your business with the habit of keeping meticulous detailed records and the habit will become easier and routine. It’s better to keep more than you need than not enough for even the best home based business owner.

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