With the deadline for filing fast approaching, we felt it’d be useful to establish a list of tax tips and reminders for home-based businesses. In particular, those who started their businesses in 2011 have much to learn when it comes to the ins and outs of dealing with the IRS. Using your home as the site of an ongoing enterprise may seem like it requires diligent navigation of the tax code to avoid an audit, but the process is not nearly as complex as you may think. With half of American businesses located within the home, how could it be?
While it may be a little late to put some of the following to use for this tax season, these pointers should become engrained into the tax paying planning for your home-based business:
Time your startup expenses accordingly: Up to $10,000 in costs of enterprises that are losing money – mainly those just starting out – can be deducted as capital expenses. This can include just about everything that goes into establishing a home-based business, from advertising costs to supplies. Therefore, it’s wise to get all the necessary purchases bought and paid for prior to your small business getting up and running.
Fear not home-office deductions: Many folks starting out with a home-based business mistakenly believe that the IRS has a separate division of employees that analyze every move of entrepreneurs working at home to catch them double-dipping. But regulations for home-based business deductions have loosened in recent decades, and the IRS has a webpage that describes in detail what constitutes a home office deduction.
Keep track of mileage: You may think you won’t put more miles on your automobile for the sake of your business than the standard deduction accounts for, but you may be surprised when you add it up at the end of the year. Many miles mean big deductions, so keep track of how much you’re driving for your business from the get-go, even if you don’t expect to do much traveling.
Put the kids to work: Wages count as business expenses, and children can earn up to $5700 ever year and not pay taxes on their income. The result is simple: give your kids positions within your company, cut them checks, hand out W-2s, and enjoy the tax breaks as a result. If you’re going to be handing out allowances and using the help of your kids anyway, this strategy makes a lot of sense.
Stay organized on all levels: From receipts to invoices to mileage, you need to keep track of everything in order to minimize the surprises come tax time. But more importantly you need to consistently adhere to a realistic home business budget in order to not only prevent making poorly planned financial choices that may lead to major tax burdens later one, but to be better prepared in the event that such emergency debts to the government need to get paid.
Starting a home-based business is one of the most American of entrepreneurial experiences. But so is paying taxes. Giving Uncle Sam his correct cut is sure to keep you from hiding your assets in Edmonton self storage out of paranoia, as well as enable you to have as much money as possible to further invest into your enterprise. It’s one of the few aspects of starting a successful small-scale enterprise that’s easier said than done.
About the Author:
This Guest Post is written by Samantha Peters, an active blogger who enjoys writing about anything of interest to entrepreneurs and business start-ups.
