TAX Basics For Startup Home Businesses
I don't claim to be an accountant, nor very well versed in the
art of creative tax preparation, but I do have a bit of
experience in handling the day to day and month to month taxes.
For the past five years, I have learned first and foremost that
the most important thing in business is to keep accurate records
for tax purposes.
I always dread the end of each physical year when it's time to
do the annual tax returns. It can be quite overwhelming for a
beginner, but don't be scared... the IRS is very helpful in
getting you on the right track and providing information to help
you get through all the forms with a minimum of hair loss.
If you will be generating an income from your business, (which
is your whole purpose right?) you will need a federal tax ID
number so the tax guys can associate your business to your name.
This doesn't sound like much fun, but believe me, it's better to
do it right the first time around than to have to deal with them
after they discover that you have been running a business and
not claiming your income on your taxes.
You can get all the IRS publications on how to get your Federal
Employers Identification Number (FEIN) from
http://www.irs.ustreas.gov/ which will also provide you with a
wealth of information regarding business startups, record
keeping and and tax information.
You will need to get a state sales tax identification number.
This number is to identify you and help you keep track of your
sales tax. You will need to charge a sales tax on tangible items
that you sell. Sales taxes are based on your geographical
location, so you will need to know what your state sales tax
rates are and what the policies are for your particular state on
sales tax and taxes on services. You can contact your local tax
agency for assistance.
There are significant tax savings for those who are running a
home based business. You are entitled to certain credits,
deductions and allowances. In order to claim these savings, you
must first and foremost keep accurate records of the daily
workings of your business.
Since you will be "self-employed", you will be responsible for
paying your own income tax, social security and medicare as well
as any employee taxes if you have any employees. Property tax
and sales tax are also your responsibility to report and pay
them in a timely manner. Failure to do so could result in some
pretty stiff fines.
The IRS provides publications which are very helpful for
starting a home based business. It would be a good idea for you
to call your local IRS office and request their business startup
package. They are more than happy to send you anything you need
to start your business off on the right foot when it comes to
taxes. I personally recommend the following booklets along with
the startup publication:
Tax Guide for Small Business (Publication 334) Business Use of
Your Home (Publication 587) Self-employment Tax (Publication
533) Tax Withholding and Estimated Tax (Publication 505)
These booklets will provide you with all the necessary details
to get you started. It will also contain a list of other
publications that you may find useful and will guide you through
the necessary steps for getting right with the IRS.
Every transaction your business makes, will have an effect on
your taxes. You make a sale, you will owe sales tax in most
cases. This tax is reported monthly on a form ST-1 which will
automatically be mailed to you prior to the end of each month
once you have established your state sales tax ID number. You
will also need to check into industry specific taxes. For
instance, I have to file a quarterly ST-8 for my husband's
business, which is a Tire Tax form in which we must collect and
pay a "use tax" for any tires that are sold.
Home based businesses also have certain tax advantages. You may
be eligible for deductions such as a portion of your mortgage
interest, auto expenses, phone expenses and depreciation for
equipment such as your computer. Other tax deductions are for
items such as certain membership fees related to your business,
postage, software used for your business and copying and
reproduction costs such as business cards and flyers.
Dealing with business taxes can be very intimidating if you've
never done it before but it doesn't have to be. Most tax
agencies are very helpful in answering your questions and
helping you get the proper forms. If you make a mistake in your
tax forms, don't worry -- the tax agencies will find the mistake
and correct it, but it's best to make sure you get it done right
to save any penalties incurred if mistakes are found by the tax
guys.
About the author:
Kim Haas is a WAHM and Founder of http://Womans-Net.com, a
popular online networking community focusing on working from
home and women in business and Owner of http://Article-Host.com.
To learn more about Kim, visit http://kimberlyhaas.com Copyright
2005
- Purchase Order Financing: for Start-ups and Established Businesses
If you are a new business and you get a request for a huge order, it's exciting, isn't it? You start mentally adding up all the money you will make, all the supplies you can buy, all the business you can get after that.... - Business Planning Help: Finding The Help That You Need
Business planning help is help that is structured to help your... - Personal Vs Small Business Credit Card
Credit cards seem to have become a fad today. Almost everyone has a personal credit card today (a lot of people have more than one credit cards). Though most of the people use personal credit cards for what they are really meant for, some are unable...
25 Users Online