- One of the most difficult things for a home business owner to do (at least during the first couple years of your business) is to keep accurate and organized records. Keep an envelope in which you store business-related receipts so you always have easy access to them. Also, keep records of your income in expenses with a spreadsheet program like Excel. This lets you compare your income to expense ratio and see what you are spending your money on.
- Since you have an office in your home, you are eligible for certain tax deductions that you would not receive as a traditional employee. You can write off a portion of your property tax payments, mortgage (or rent) payments, utility bills and insurance, because it is all associated with running your business. Legally, you can only deduct the amount of the payments that correspond to your home business. If your office is only 15 percent the size of your home, you can only deduct 15 percent of your mortgage payment, insurance and so on.
- Many home business owners forget about deducting many expenses for which they are eligible. Any money that you spend on anything related to your business is deductable on your taxes. The costs associated with your business website, computer maintenance and fuel used to meet with clients or drive to the store for supplies are all eligible deductions.
- One of the main differences between working as an employee and having your own home business is that you have to pay your taxes quarterly instead of annually if you want to avoid penalties. Although you may not know exactly how much you are supposed to pay every three months, you are required to estimate the amount and pay according to that estimate. At the end of the year, you are also required to file your annual taxes that work in much the same way as if you are an employee. If you have not paid enough throughout the year, you have to pay the deficiency. If you have paid too much, you will get a refund.
- You may think you can prepare the taxes for your home business yourself. This may be true when your business is small and you are just getting started. However, once your clientele begins to grow and you grow your business, hiring a professional tax preparer is a necessary expense. They know the latest tax laws and regulations so they can find the most deductions for your home business. More importantly, they can make sure your taxes are done correctly so you do not get in trouble with the IRS. Find a tax preparer that specializes in small business taxes so they can answer all your questions immediately since they are familiar with your situation.
