As a small business owner or entrepreneur, you are responsible for paying taxes each year. Let’s explore three things you probably didn’t know about home business taxes.
Document Anything and Everything Used for Business Purposes
One of the best things about being self-employed is you can deduct almost any expense that relates to your business. Say, for example, you work from home on your computer and smartphone as a content creation specialist. Below is a list of expenses you can deduct on your taxes:
- Cell phone bill.
- Internet bill.
- Computer expenses.
- A percentage of your utilities that go toward providing light, water, heating, and cooling to your office.
- A percentage of your mortgage payment.
- Fuel expenses relating to business activities (going to the local library to submit an assignment because your home Internet service is currently experiencing downtime).
- Office supplies.
- Marketing expenses.
- Meal expenses (for when you meet with a new client over lunch or dinner).
You Can be Penalized for Not Paying Quarterly
The taxes you must pay as an entrepreneur will depend on the state in which you live. All entrepreneurs must pay federal taxes. If you live in a state that doesn’t have state income tax, you don’t have to put money aside to pay this type.
Once your business is well-established, usually within one to two years, you will need to pay your taxes on a quarterly basis. In fact, if you don’t and the government catches on, you might be penalized with a fee, which results in a larger tax bill. Because you don’t know exactly how much profit you are going to earn during the course of the year, you might end up paying in too little or too much when you pay quarterly, meaning you will get either a tax bill or a tax refund once you file your return.
If you fail to file or pay your taxes altogether, you can expect a levy to be placed on your bank accounts within two to three years of not filing. There are ways, however, to stop an IRS tax levy.
It’s Actually Simple to Streamline the Tax-Paying Process
Contrary to many small business owners’ beliefs, it’s simple to streamline the tax-paying process. Start by keeping a folder with all receipts related to your business expenses. Next, maintain a digital file of all clients you work with, including the profit you earned from each one.
If you don’t receive a 1099 from a specific client, you can simply file the profit on your taxes as earned income without the 1099. Lastly, you can go online and pay your taxes quarterly to the appropriate entities. Take receipts of your payments to your tax accountant when filing at the end of the year. He or she can determine if you have a remaining tax bill or will receive a refund.
Getting your business up and running takes a lot of careful consideration, especially in regard to its financial aspect. From creating a budget to investing in inventory and paying your taxes, managing your finances is crucial to success.
