Home Based Business: Income Tax Information

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Home Based Business: Income Tax Information

By: Tina Rideout

Understanding your Tax obligations relative to your Home Based Business can be a confusing issue. The IRS has been more attentive to the claims made by Home Based Business operators; therefore it is imperative that we educate ourselves about our obligations and responsibilities.

The IRS website provides information regarding Home Based Business tax obligations and requirements.

http://www.irs.gov/index.html

IRS Workshops:

The IRS website provides a list of workshops that are sponsored by IRS partners who are specialist.

They provide a variety of topics:

General Tax information

Record Keeping

Insurance

Retirement Plans

Online Classroom

http://www.irs.gov/businesses/small/article/0,,id=97726,00.html

What Can I Deduct?

Self-Employed Individuals or Independent Contractors

2003 & 2004 Tax Changes for Businesses

Employment Taxes for Small Businesses

Several Home-Based Tax Schemes have developed in the past year. The IRS has issued warnings in order to help us avoid the pitfalls of false claims.

Tax Scams - How to Recognize and Avoid Them

These schemes manipulate and misinterpret tax laws.

Related News, Court Cases and Tax Law

Internet Driven Home Based Business income is based on Commissions.

The full amounts of any commissions you receive are treated as income. This is true whether your commission is called a bonus or a percentage, and whether it is based on both your sales and the sales of other sellers working under you or on purchases from the company with which you are affiliated. You are taxed on gross income minus expenses.

Tax Services and Products:

Information Returns Processing

Small Business Products Online Ordering

Approved IRS e-file for Business Providers

Avoiding Problems

Business Forms and Pubs

About The Author

Written by Tina M. Rideout, Free Internet Home Based Business, Training Series. For more information visit: http://free-internet-home-based-business.com

Comments

phil d 17.01.2008. 21:30

should i file my business and personal income taxes seperately for the irs? i had a regular job the first part of the year, so there are regular 1040ez taxes to be filed as usual. but also i started a small home based LLC late in the year. the business hasn't made much money yet, but there are already alot of materials, expenses, etc to write off for 2007.....i was told that my business was small enough to use the regular forms for income tax but i could use some advice......thanks!

phil d

Admin 17.01.2008. 21:30

Do not use form 1040ez. Because you have stated a business in 2007 you need to do the following:
File a form 1040 (Not a 1040 a or 1040ez)
Do a schedule for your business income and expenses
Do a form for self-employment tax
Do you job and business income together, not separately for the IRS. Do it separately will only make you do a 1040x. This is an amended return to change or add any information for a already file IRS return.

Admin

Nile I 25.06.2008. 20:25

What is the best home based business opportunity? Does anyone know the best home based business opportunity (preferably with no or little upfront costs)?

Nile I

Admin 25.06.2008. 20:25

First, you will not be able to have a business without any up front costs. That wouldn't be a business. That would be a home job. Which only pay minimum wage. After taxes are taken out, then your looking at your take home being below minimum wage. Is this sufficient amount of income for you?
If you want to make a sufficient amount of money working from home, then you will need to invest some money in whatever business you want to venture in. Businesses are not free to start up. It's a fact of life. Most home based businesses cost under $500 to start. There are a lot of different industries to look into. You have the same income opportunity as a traditional business, without all the over head expenses. Most everything you use on a daily bases (in businesses not jobs) are tax write off's. A huge income opportunity for you there working from home. I created a blog on my 360 yahoo page on home based business opportunities. Over half a dozen different ones to choose from in several different industries. Also a lot of information on scams, what to look for the BBB, and a few other things you should be educated on before getting involved in any company.
http://blog.360.yahoo.com/blog-eqfAfFMlcqA8fDHDwdpcueRYyTm4
If you have any questions, feel free to email me at kaiden4@aol.co

Admin

LISA 12.08.2007. 18:38

Opening home business, What do I need to know? My husband and I have been planning to open a home based business for just over a year. Our plans are to open it by the end of 2008. My main concerns are taxes. We can not foresee our profits, but we are expecting under $50,000 for the first year. It will just be my husband and I (no employees). What taxes will we have to pay?
We will have a separate building on our property which the business will be primarily run out of, can we use this for any deductions? I am looking for any information that will help us to get the business started and have everything run smoothly. Any help would be appreciated, the more detailed the better.

LISA

Admin 12.08.2007. 18:38

Go to Barnes and Noble and get the book "6 week start up" by Rhonda Abrams, it will be a huge help to you.

As far as taxes, you will have to pay self employment tax on your income each quarter, and a higher percentage of social security contribution. You call the IRS and get an EIN number that is a tax ID for your business, and you begin filing your self employment payments every 3 months. At the end of the year you file a regular 1040 with a schedule C, and pay the difference or get a refund.

Get a separate bank account for all the monies from the business, and keep it separate, makes it much easier to do your taxes at the end of the year. If book-keeping isn't your thing, there are a lot of local book keepers who will do yours monthly for a small fee (mine is $65 a month, she does all my numbers with my blessing, and that includes payroll for 12 employees.)

As far as the deduction for the building, there is an IRS form for business use of your home that allows you to pro-rate a percentage of your costs according to how much square footage is dedicated to the business. Since you're using a separate building, that won't apply. You'll have to keep a record of all the costs associated with the separate facility and declare them on your Schedule C. (Utilities, maintenance, etc.) Good luck!

Admin

lbaker74 31.07.2008. 15:43

I want to start a home based business but I was wondering about being tax exempted here in TN? I have looked that the TN gov website but I don't see anything there that deals with home based businesses. Could someone help me. Thanks

lbaker74

Admin 31.07.2008. 15:43

TN does not have an income tax on earned income. You will only pay Federal income taxes on the income.

If you are selling tangible property or providing a taxable service to your customers you will have to register with TN to collect and render TN sales taxes. All of the information you need for that is right there on their website. It does not matter if your business is home based. If you are providing taxable goods and/or services you must collect and render sales taxes.

Admin

Boris The Spider 16.02.2007. 20:12

Is there a special license that is required to consult with someone (in Calif) about income tax issues? It is an internet home business (based in California), but the clientelle may come from anywhere. Any links to resources, information about internet home business relating to tax consulting would be helpful. Thank you.

Boris The Spider

Admin 16.02.2007. 20:12

No special license is necessary to give tax advice or to prepare tax returns, however, in order to represent a taxpayer before the IRS, the individual must either be an enrolled agent, a CPA, or an attorney. Individual states may have slightly different regulations, although they will generally follow the same requirements as federal. For example, in California, in order to represent the taxpayer before the Franchise Tax Board, you must be an enrolled agent, attorney, or CPA....however, California will only recognize a California licensed CPA. A Georgia CPA cannot represent the taxpayer before the Franchise Tax Board unless the Georgia CPA applies for, and receives, a CPA license from the California State Board of Accountancy under reciprocity.

Admin

LISA 12.08.2007. 19:53

What taxes do you have to pay when you own a small home based business? I am planning on opening a small business with in the next year. I am trying to find out how my taxes will change. Is it true that i will have to pay in taxes every three months? How is this calculated? What taxes will i pay (federal, state, S.S, medicare)? what percentage of my imcome will i have to pay each quarter? I have three children, will i still be able to claim EIC? Any and all info would be a huge help. Thank you

LISA

Admin 12.08.2007. 19:53

You have all the taxes mixed up. Having kids has nothing to do with it, or percentages or medicare etc. That all has to do with the taxes you file at the end of the year with the IRS.

With a home business it first depends on the state you live in. Where I live, I pay state and city taxes only on what I sell to people in my same state. I report my total income quarterly for the previous three months, but only pay taxes for my state and city sales.

When you pay depends on the business. I do pay mine to the state and city every three months, but it depends on the type of ownership. ie. sole proprietor, LLC, Corp and so on.

Example, if I made $3000. in three months but only had 1 sale in my state I would report $3000. in sales but only pay maybe $2.50 in taxes. This information will all be given to you when you get your license from the Department of Revenue. You can walk in to one in your area or apply for the license on-line.

And yes you can still claim EIC like I do.

Admin

momofthreemiracles 03.05.2007. 02:37

form to fill out to apply for home based business? I am running a very small business and a friend of mine who is an accountant suggested I get a federal tax ID number for checking purposes as well as to buy things wholesale to save on money. She said it would help keep things organized. She said she thinks the form to fill out is the ss-4 form. Is that correct because I looked at that thing and was confused! I will have no employees for many years to come, no benefits to pay or anything.

momofthreemiracles

Admin 03.05.2007. 02:37

You don't need a federal tax ID number unless you have employees. Contact your state's department of revenue to apply for a resale license, which is what you need to buy wholesale. When you apply for the resale license, you will tell the revenue department your business name, social security number, and any other pertinant information about the business or yourself. You will then be required to file a sales tax return at least quarterly, whether you had any sales or not.

You may also need to check with your county to see if there are any zoning restrictions or special taxes that apply to any home-based business in the county. You will usually report your business income once a year and may be liable for taxes based upon your business net revenues.

You will, of course, be required to declare all your income and expenses on your federal and state income tax returns.

Once you've decided upon your business name, you can open up a business account at your bank.

Admin

Joe 29.06.2013. 19:09

Legal requirements to maintain a small landscaping business? I recently started a landscaping business. I am currently registered as a sole proprietor in Pennsylvania and have a sales tax number along with an EIN number.

When and how often must I submit tax information?
Do I need to keep records of anything other than revenue and expense information?
Is there anything I need to do each year to maintain my status as an operating legal business?


I've had little success finding organized information online, so any help you can give would be greatly appreciated!

Joe

Admin 29.06.2013. 19:09

Make sure you are insured as well. If you cut down a tree and it accidentally crashes through the home owner's roof, your insurance will pay for that. Otherwise, you pay.

Do you taxes once a year, same as your federal income taxes.

Keep all records of anything you buy, because so many things can be written off for tax purposes. A computer, office supplies, business cards, advertising, gas receipts...these things can be written off. Have a professional do your taxes for you the first year, and learn that way for the future. You can save a ton of money with tax write offs.

Keep records of all your jobs, with dates, details on what you did, their names and numbers, how much you charged. Basically, a data base of customers.

Keep records of your employees, even if they are only temporary. You will need to turn in their income when you do your taxes. (unless you pay them under the table)

Good luck to you! :)

Admin

wetlandkeeper 24.09.2008. 22:57

What taxes and laws do I need to know about when selling cross border (US/Canada)? I am a home based business owner working for a Canadian company and all of my friends and family are in the States. I would like to sell my products to them but I am not sure what taxes and laws I need to honor.
Any help finding this information would be great.
Thank you

wetlandkeeper

Admin 24.09.2008. 22:57

The income taxes are between you and Revenue Canada.

The import duties and any taxes (sometimes US Customs collects State sales and use taxes) are the responsibility of your customers. They are collected on the delivery end.

Admin

work 4 self 21.04.2006. 16:18

What type of business can be started with little or no start-up money? I consider "low" start-up cost to be under $5000.00. Also, if there are any businesses that could probably get a grant to get started. I contacted the SBA (Small Business Admin.) and was told that the government is not giving out any grants to start a business. I am fiddling around with vending machinces, snack and soda. Should I just stick with that field? Can vending bring in enough extra $$$ to live comfortably off?

work 4 self

Admin 21.04.2006. 16:18

Entrepreneur Magazine has made a list of Low Cost Startup Businesses that you may want to consider:

http://www.entrepreneur.com/lowcostbusinesses/0,6617,,00.html

Some other home business ideas:

Top 10 Home Businesses with Rapid Break-Even Time http://www.powerhomebiz.com/vol33/breakeven.htm
10 Profitable ?Go-Out" Home Businesses http://www.powerhomebiz.com/vol31/goout.htm

The best home business that you can be sure is not a scam is one that you start yourself. It will depend on what you want, how you define to be interesting. A person may consider a pet sitting business to be the most exciting work in the world, while another person would rather watch TV than take care of dogs.

The key is to determine what your interests are, what you want to do, what is suitable for your lifestyle and your overall goals, and what can fit with your resources.

Dan Ramsey in his book "101 Best Home Businesses" has a chapter on how to find YOUR best home business. He suggests these 10 steps:

1. List 5 things you do best
2. List how others would benefit from what you do best
3. Find out how to give people what they want
4. Learn the value of your services to others
5. Find out who else offers similar services
6. Learn from the successes of others
7. Learn from the failures of others
8. Plan your own success
9. Make low cost mistakes
10. Enjoy what you do and how you do it

He then made suggestions on the best home businesses according to type. Here are a few of them:

Best Businesses Using Craft or Physical Skills
- antique restoration
- auto detail service
- carpet cleaning business
- errand/delivery service
- housecleaning business

Best Service Businesses
- bed and breakfast operator
- caregiver
- catering service
- senior day care center
- tutoring service

Best Professional Businesses
- desktop publisher
- magazine writer
- import/export service
- income tax preparation service
- event planner

You can also check out the following books:

Turn Your Talents into Profits: 100+ Terrific Ideas for Starting Your Own Home-Based Microbusiness
The Best Home Businesses for the 21st Century
121 Internet Businesses You Can Start from Home
The Best Internet Businesses You Can Start
101 Ways to Make Money at Home

And SBA is right - there are no grants for starting a business. From the SBA website http://www.sba.gov/expanding/grants.html

"The U.S. Small Business Administration does not offer grants to start or expand small businesses, although it does offer a wide variety of loan programs. (See http://www.sba.gov/financing for more information) While SBA does offer some grant programs, these are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance. These grants generally support non-profit organizations, intermediary lending institutions, and state and local governments."

Most of the federal grants are given to specific target groups with specific requirements (e.g. minority business owners involved in transportation related contracts emanating from DOT - Grant#20.905 Disadvantaged Business Enterprises Short Term Lending Program

Grants are also often given to non profit groups or organizations involved in training or other similar activities (grant 59.043 Women's Business Ownership Assistance that are given to those who will create women's business center that will train women entrepreneurs

http://www.cfda.gov
http://www.grants.gov
http://gtionline.fdncenter.org
http://www.powerhomebiz.com/vol66/grants.htm
http://www.sba.gov/expanding/grants.html

Admin

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