Running a business from home has several benefits.
However, failure to plan and prepare for filing taxes can easily offset these.
Two major reasons home businesses fail are time and dedication. It’s easy to underestimate the time it takes to start a home business, and working at home brings many distractions.
The additional “job” of tax planning shouldn’t be the proverbial “last straw,” though. Keep reading for some tax tips that will save you time.
Home Business Tax Tips
With a home business, preparing for taxes involves grasping what filing business taxes entails—plus meticulous record-keeping and organization.
Consider these tips.
Understand the Tax Code as It Relates to Home Businesses
Go to the IRS Small Business and Self-Employed Tax Center, a directory of tax publications affecting small or home-based businesses in the U.S. This will help with planning and organization.
The most common home business deduction is for a home office.
Be aware, though, that taking this deduction requires a lot of detail and documentation. Some other deductions are available, too.
They are:
- A home office deduction can be taken for certain home-related expenses. It’s critical to demonstrate that part of your home is your primary place of business. If your space and its use qualify, you may deduct things like mortgage payments and use of your personal vehicle
- Startup expenses include the costs of starting your home business. Pre-opening costs might include a business plan, research expenses, borrowing costs, or technology. Post-opening costs might include advertising or promotion, and any outside services
- For other business expenses, you may deduct such things as retirement plans, use of a personal vehicle, meals, office supplies, marketing, and professional services
Since some of these expenses could be for personal as well as business use, you must keep receipts and records to justify your claim.
Establish a System for Keeping Records and Tracking Expenses
Consider this record-keeping wisdom: “If you want to deduct it, you will need to prove it. It can be inconvenient to save this much paperwork, but you will be grateful come tax time.”
There are many records you should keep.
First, develop a good filing system.
This system should begin with a small folder or another portable container for receipts and other paperwork while you’re away from your office.
You should file documents according to type—for example, receipts for dining and/or travel, auto maintenance and repair, office supplies, etc. If you use several professional services, have a folder for each.
Next, consider a good financial software program.
There are several great software programs for small business accounting. Most are available online by subscription—so they’ll stay updated.
One of these is QuickBooks. If you need help learning it, contact an assistance business like QuickBooks ProAdvisor. Don’t lose time trying to figure it out when you can get help!
As Tax Time Approaches…
We hope these self-employed tax tips are helpful for your home business.
There is still one more piece of advice we should offer: don’t go it alone if you don’t need to.
Starting and running a home business can be challenging, especially when it comes to taxes. However, there are plenty of tax professionals to help you navigate taxes for home businesses.
What you pay them might save you money in the long term. It should at least save you some stress. It’s not that you don’t understand taxes, but these people study them every day and keep up with any changes.
If you’d like to read more about business and other financial matters, keep reading our site.
- Picking Your Next Business Premises: The Essential Considerations - March 2, 2021
- 5 Compelling Reasons to Invest in Commercial Real Estate - February 27, 2021
- Is It Possible to Earn a Living Wage With Multi Level Marketing? - February 25, 2021