Tax law is complex and terrifying to most people, and technical jargon makes filing returns an insurmountable ordeal for most people. The IRS needs to do its job, just like the rest of us, but everyone has heard horror stories of IRS misconduct, negligence, and mistreatment. You have rights as a taxpayer. Knowledge is power, and dealing with the IRS is no exception. Most people are hard-working, honest, and just want to comply with the law. However, with increasingly complicated tax law, how are most people supposed to understand their own tax situation? You may have many questions about what is deductible in your business. Well, if you are self employed, a lot of things are! All of your supplies, health insurance, beauty items, space rent, etc, is deductible if you own your own business. You can even deduct part of your home expenses if you conduct business in your home. Other items, such as computers and other large or expensive items are called depreciable assets. You can deduct these items over time. Keep track of all of these items on a spreadsheet, or a journal, so you have a good record of what you can depreciate. 5 Great Tax Tips for Small Business Owners 1. Open a Separate bank account for your business. This is so important! Keep your business deposits and expenses separate at all timesit makes things so much easier!! When you want to take money out for personal use, just write yourself a check and put owner withdrawl in the memo line. That way, you keep track of personal expenses. Charge all your business expenses to a business credit card. You will be so happy at the end of the year that you did. If everything in your business is done under your own name, then you dont need anything special to open an additional account for your business. 2. Keep all your receiptsin a shoebox, or Kleenex box, whatever. Keep proof of your expenses, and the IRS will never have a reason to question your deductions. Just write business on the receipt. 3. Dont be sneaky with cash! The IRS has a can obtain warrants to examine all your bank accounts, credit accounts, and assets if it believes fraud has occurred. This is how most people get caught. Dont deposit huge sums of cash into your personal bank account and then try to explain it later when the IRS asks you where you got it. Its not worth it. Currently, some of the criminal penalties for major tax fraud exceed penalties for even violent crimes, like assault. 4. Dont Forget to Pay Self-Employment Tax!- Many people are confused by this. Self-Employment tax is Medicare and Social Security that self-employed business owners must pay. Normally, when an employee works for a company, the business must pay some of the employees Social Security and Medicare taxes. However, when you own your own business, you still have to pay these taxes to the government. 5. Dont Forget to File on Time! Dont forget to file on time, even if you dont have the money to pay your taxes. The penalties for filing late are much greater than if you file on time, and make a small payment. The IRS is much more forgiving with taxpayers that attempt to be compliant. The IRS will allow you to make payments, too. Just keep track of your payments, and see a tax professional if it seems too overwhelming. |
