At Tax Time

It's a sticky subject for any home business. What do I need to when it comes time to pay taxes?  Do I have to report my income if I'm a home based business?  What kinds of deductions can I take?

The answers aren't always that easy. While you could do your taxes yourself, if you are going to be operating a business, we highly suggest you get an accountant familiar with tax laws and who is able to maximize your deductions.

The IRS considers you a business if you are actively engaging in business transactions and make a profit at least three years out of five. If you have registered your business and gotten a business license, regardless of whether or not you've made a profit, you must report your income and expenses on form Schedule C of the 1040 tax form.

The good part about operating a home based business is that there are many everyday expenses that can be deducted if they are used to conduct your business. If it's used for your business, you can deduct the associated costs. What kind of things can you deduct?  Here's a list of a few of the expenses that the IRS will allow:

~  Telephone and voice mail
~  Magazines and books related to the business
~  Mileage if you travel to meet with clients
~  Classes and workshops – this would include trade shows!
~  Postage
~  Memberships in professional organizations
~  Internet connection
~  Advertising
~  Office supplies
~  Printing and copying

You can also write off a portion of your house payment, taxes, and utility bills if you have a home office, however, you must have a portion of your house that is set aside and used exclusively to operate the business.

It's very important as a small business owner to save all paperwork and receipts associated with your business. You'll be glad you have them if you happen to get audited plus, you'll have everything handy when it comes time to prepare your return.

It's a good idea to invest in an accounting software program like Quick Books or Microsoft Money. Not only will these programs keep track of your expenses, but they can easily show you where you stand financially at any given time. You must, however, stay on top of entering in the information so that it is current and up-to-date. If you don't have the money to buy one of these programs, you can always use Microsoft Excel.

Save every receipt that you think might be considered a business deduction. Keep an envelope with you at all times to save your receipts. Have a small notebook in your car so you can keep track of mileage.