Need Home Business Tax Tips

[pretty cheap jewelry]

I have a small home based business (see my signature) and this will be the first year to report income.

There is a dedicated area in my home to the business. I carefully track sales, expenses and keep receipts.

We are avid do-it-yourselfers, and have always prepared our own forms.

OK, anyone else out there have important tips for Pretty Cheap Jewelry?

[kristinecfp]

Re: Need Home Business Tax Tips

Well... first I have to say that if this is your first year in business and you're not familiar with the tax deductions/credits available to you, I would strongly encourage you to hire a CPA or qualified tax preparer to help you with your taxes.

Second: read, read, read! Even if you hire a tax preparer you should have a basic understanding of income taxes for small businesses/self employed persons.

Third, keep excellent records. Whether you prepare your own return or hire it out, good records are a huge time and money saver.

Home business tax tips is a big topic, so it's kind of hard to answer your question in one post. However, I can list the more common deductions for home businesses. If you have a more specific question, you might post it here as well.

Common tax deductions for home businesses:

Inventory
Automobile expenses - standard mileage deduction or actual expenses
Advertising/marketing
Supplies
Office Supplies
Depreciation on furniture or equipment
Insurance
Accounting and legal fees
Home office deduction
Phone, internet, website

This is just a basic list. There are many more deductions that you may be eligible for. You might want to review the IRS Publication 535 - Business Expenses at www.irs.gov

[Budgeteer]

Re: Need Home Business Tax Tips

I know that talking to a tax professional is not what you wanted to hear from people, but I have to agree with Kristine. If you want to stick with the do-it-yourself route as much as possible (sounds that way), you could certainly pre-prepare things and bring it to someone to review. That would save a lot of time that you would otherwise be charged for.

[Daylily]

Re: Need Home Business Tax Tips

I have to agree on the suggestion of seeing a professional. DH is self employed and we take the deduction for the home office, mileage on the car, etc. We spend about $300-330 a year to have our tax return prepared and it is worth every penny. I would have no idea how to fill out those forms. Plus there is the whole issue of paying the full social security payment.

I get confused as to whether an expense related to the house can be classified as an expense or whether we have to classify it as an asset and depreciate it. Same goes with office supplies.

Definitely see a professional for a couple of years and then if you get the hang of it you can do it yourself in later years.

[pretty cheap jewelry]

Re: Need Home Business Tax Tips

Ok, thank you all for the advice. I am sort of dreading this first time...

[Joan.of.the.Arch]

Re: Need Home Business Tax Tips

In seven years I was never able to deduct a thing for my business. It was all on computer that was also for personal use. My "office" was a corner of the dining room. My incidental supplies were tiny: a new 50 cent paper folder once a year for hand written records and to save correspondence, one pack of notebook paper that lasted the whole seven years. Just keep your taxes paid quarterly. Forms are at post offices and some government offices. Around my town, the library is the quickest source for IRS forms. Use the IRS website; search self-employed, self-employment. If you incorporated, the situation will be different. Don't forget your state and city or county taxes.

[marjorie]

Re: Need Home Business Tax Tips

You've ben given good advice. I'd also like to suggest that in our county tax classes for small business are offered free. A small charge for the text, and it buys an instructor, and an advisor from the IRS for specific questions. Very helpful, if only to tell you what to keep track of and how the IRS "thinks" public policy to make it easier for you to figure out what is and is not apt to be a worthwhile deduction.

[pretty cheap jewelry]

Re: Need Home Business Tax Tips

Oh yes! I will watch for a community college or city sponsored class. Way to go!

[saver25]

Re: Need Home Business Tax Tips

You will definitely absolutely want to go see a CPA or other qualified tax professional. I am sitting for my CPA exam next January/February so of course I will say that but I will say that my partner has been a CPA for over 25 years and even he has to work hard to stay current on all of the changes in the tax law.

If you enjoy putting in many hours to stay up on that kind of thing then that is one thing but even if you happen to overlook one or two deductions every couple of years and you pay an extra couple thousand in unnecessary taxes then that negates the couple hundred dollars that you will pay a CPA to make sure that you are in good shape every year.

[kristinecfp]

Re: Need Home Business Tax Tips

H&R Bloch actually has a pretty good tax class. It's meant for people who will be preparing taxes for HRB, but I know many small business owners who have taken the class just so they could understand taxes better. I would recommend it, even if you have someone prepare your taxes for you. It's difficult to know if your tax preparer is doing a good job for you if you don't have at least a basic understanding of income taxes.

[saver25]

Re: Need Home Business Tax Tips

That is very true. I took that class as well. The cost is only about $100 for their introductory tax preparation class and is well worth the money. It allows you to have a great overview of individual tax preapration principles and you even get a textbook/workbook as well.

[pretty cheap jewelry]

Re: Need Home Business Tax Tips

Actually we asked them to 'review' our return one particularly complex year and they said it looked great, we didn't miss much of anything! So I have a lot of confidence I can muddle my way through it.