When you have your own home business, there are several things you need to know when it comes time to preparing your taxes.
I'm sure many people worry and actually despise that dreaded time of year, when tax time has once again arrived! Each year tax time can be a nightmare for many people, and what seems to be an added burden is being included in the self-employed group of people, who sometimes tackle the job of preparing their own taxes for a home business.
Let's try to alleviate this problem by supplying the necessary information needed to handle taxes and your home business.
To begin with, keep a detailed record of all business expenses from utility bills, materials purchased for your business, phone bills (if used for business purposes), mortgage or rent, and gas receipts if applicable to your home business, for example, deliveries, transportation to and from locations for services rendered, and possible business meetings.
When preparing your taxes, a percentage of your business expenses can be deducted from your taxes, so you will need accurate records and receipts.
If your home business is daycare, all food receipts and miscellaneous items used for the care of children should also be saved since they can be a deduction as well.
Secondly, another aspect to consider when preparing taxes for a home business is the room or space involved in the home business. For example, if you have a home office, the area used exclusively for your home office can be a deduction when preparing your taxes. Be aware though, that claiming a home office as a deduction sometimes signals a red flag for the I.R.S. to take a further look at your taxes as a possible consideration for an audit. If your home business is a daycare, however, the I.R.S. is less likely to scrutinize your taxes for taking a deduction since the home is used as a daycare.
Next, determine if office expenses were used for the use of your home business. These office expenses would include expenditures such as, internet use, for example your internet provider and D.S.L. or cable modem, printer, fax machine, scanner, and paper supplies. A percentage, if not all, of these expenses can also be claimed as a deduction on your taxes.
Finally, which tax forms do you actually need to prepare your taxes for a home business?
Here is a list below of tax forms necessary for use in a Home Business.
The 1040 tax form (whether you are single or married), since you are claiming a home business.
Form 8829----Expenses for Business Use of Your Home
Schedule A----Itemized Deductions
Schedule C----Profit or Loss from Business
Schedule SE---Finally, when you are self- employed, you will also be required to pay a self-employment tax. A 15.3 percent tax from your net earnings of self-employment is calculated on the SE form and then reported on the 1040 tax form.
One positive aspect to the self-employment tax is that you can deduct half of your self-employment tax from your total income that you reported on the 1040 tax form.
When all your receipts and deductions seem to be in order and you have all the necessary tax forms, you can prepare your own tax forms for your home business. There is of course the traditional paper form of filling out all the forms and mailing them to the I.R.S. or you can choose to use the free e-file tax web sites offered on the internet. An alternative is simply to choose any of the several tax preparer's in your local area or your own personal accountant to do your taxes.
Hopefully, all that entails preparing your own taxes for your home business will not be too stressful in the future, if you follow the steps outlined above.
