Category Archives: Tax

Mar
31
2023

Tax Advice For Your Home Based Business

There are many advantages in owning your own home based business. It is more than just working from home it is a business that has many advantages, one of them being tax advantages. As an employee, not only is your income predictable, but so are your tax write-offs. Typically as an employee your two major write-offs are your home and your dependents. But when you have your own business, large or small, the tax write-offs/tax advantages are numerous.

There are times in business, especially the first three years, where you may spend out much more than you earn and at that point you maybe eligible for a tax credit. A tax credit is when the money you paid out will not be refunded to you, but you will be credited that amount for the year(s) to come until your income exceeds that credited amount. Keeping a good track record of your expenses is very important. Not only should you keep your receipts for each business you may have separate, but you should record it in a program such as Quick Books. Many accountants use software such as quick Books and if your accountant uses something like that then it will be simple for you to download your information to them when it is time to file your taxes. It is also a good tool to have for you to reference when you need to review your budget or see when and where you profit or have a loss via customers or time frame.

Here is a list of the numerous tax advantages that you maybe eligible for when you own a home based business:

1. Auto Expense. If you use your vehicle for business purposes there are many items that you can write-off on your taxes. Keep records of your mileage, gas receipts, tolls and parking fees. If you lease your vehicle, you must take a percentage of the business year end mileage. One easy way to keep track of the year end mileage is to get your oil changed at the beginning and at the end of the year for an accurate mileage reading. If you solely use your vehicle for business be sure to keep your maintenance and repair receipts. Leverage your time, buy groceries from a store that is on the same route as your business appointments that way you will save a trip and ultimately write it off at the end of the year.

2. Payroll. If you have children helping in your business pay them. If it is under $5,150 per year (maybe slightly higher now), you don’t have to file a return for them. With the money they earn, have your kids pay for their extracurricular and daily incidentals using their wages earned. It will teach them life lessons and help your bottom line.

3. Office Equipment/Expenses. If you have an office inside of your home, you can write off any equipment or furniture in it as long as it is used 50% of the time for business. Office equipment such as computers, printers and other technology can have a tax deduction of up to 75% of your purchase price on your taxes the year they were purchased. Other office equipment would include: desk, chairs, desk and room accessories, paper supplies, stationary, business cards, samples etc. When you switch out or update your samples, it would be very economical if your samples are necessities that your household can use. There is not a size limit on samples, samples don’t have to mean “sample size” or 3 oz. like the airlines require us to use. A percentage of your utilities, home insurance, repairs and up keep are all tax write-offs. Cell phones, internet and fax services are tax write-offs too. A deduction of up to $30.00 per week to pay for your phones may be made and the extras such as voicemail, three-way and text messaging are deductible.

4. Other. Shipping and handling fees, event costs, health insurance, lodging, conference fees, business meals, convention fees, education, licenses and food that you purchase for an event are tax deductible.

So as you can see, just about every expense pertaining to your business is tax deductible. Remember when you form your business team your tax accountant plays a very important role. Before you begin or continue any further you should consult with your tax accountant for additional tax benefits that are specific to what you do. Meet with them weekly, monthly, bi-monthly or quarterly depending on the size and growth of your business to make sure you stay on the right track. Watch your financial output because even though you get tax deductibles it doesn’t mean you will get that money back like I mentioned at the beginning of this piece, you may receive a tax credit. Monetize as you go so that you can earn income as you build. Get and stay organized, communicate with your team of advisors and ask any questions or concerns that directly affect your business.

Do your research. There are many more tax advantages that are available they you may be eligible for. Don’t short change yourself by not being informed. Be proactive so you don’t have to react to any costly, avoidable mistakes. Start this New Year off right by ending the last strong…why not begin with your taxes?

Oct
31
2022

Tax Requirements for a Business Start-Up

Are you planning to start a business? Well, there are several State and Federal requirements that you will need to meet in order to operate legally. These requirements depend a lot on the type of business entity you settle on for your business. These start-up requirements include both State and Federal tax registration requirements. Below is a list of some tax requirements for various business entities.

Employee Identification Number (EIN)

The Employee Identification Number (EIN) is a tax registration number that identifies employers and tax agents who withhold various taxes on behalf of the IRS. Most businesses require an EIN, especially if they have employees or if they withhold sales taxes. However, sole proprietors that do not employ may operate without an EIN. You can register for an EIN by filling out an online registration form available on the IRS website. You are also required to send an SS-4 to the IRS to accompany the registration form. You will then receive your EIN and you will use it when submitting any withheld taxes to the IRS.

State Business Registration

Various business entities will have different state registration requirements. You can get the details of these requirements by contacting your respective state business registration office or by consulting with a business attorney. In most cases, your business registration will award you a business number that you will be required to provide when filing various State and Federal taxes.

Books of Accounts

The tax authority requires various business entities to maintain various books of accounts as their primary support documentation for their taxes. It is therefore, important to ensure that you set the right books of accounts according to your business entity at the start of your business. This will enable you to be prepared for your tax returns. Generally, sole proprietors will not require detailed accounts but must maintain consistent schedules and records of business transactions. Partnerships, corporations, and limited liability companies will however, require proper double entry books of accounts and clearly indicate partners’ share of profits or dividend distributions to shareholders. The C-Corporation has more complicated books of accounts to keep. You may require the help of an accountant to set up the right account bookkeeping for your business. You can also purchase and install various accounting software that will assist you maintain proper bookkeeping and assist in preparing the taxes for your business.

State Tax Requirements

Various states will have different tax requirements for State taxes. If your business will be a withholding tax agent for sales taxes for example, you will need some tax registration from your State. Various business entities will also have different tax requirements. This is especially so for the business entities created and governed under the State law. These business entities include S-Corporations, C-Corporations and Limited Liability Companies. S-Corporations, for example, require the owner or owners to elect the option in which they will want to file their taxes. They can file their taxes as a sole proprietor, partnership, tax entity, or a Limited Liability Company.