How to handle business taxes?

[spartanic]

I have a home business that I've started. I sell products to people through some of the websites that I own. My question is how do I manage my taxes and meet the guidelines of the IRS? Are there softwares out there that can do all this for me? Turbotax perhaps? Any advice and tip would help. Thanks!

[dwaynegarrett]

The first thing is to have a separate bank account just for the business so you can operate like a business.

Second is to keep good records. Track income, expenses, and mileage for business purposes.

Now you can do your tax return yourself with a software, but it is a whole lot easier to just keep good records and turn it over to an accounant to prepare the returns for you.

Another sideote is that there isn't any sales tax for items sold online yet.

[karona]

Dwayne, is it absolutely necessary to have a business bank account? I have one checking account for me and my cleaning business, and I use MS Money to track all of my income. I have practically no overhead, so I just claim all of my income, minus some mileage. I also do my own taxes because of this.

I've been told to get a business checking account before, but since you mentioned it here, I thought I'd ask if it's really necessary for a one-person cleaning biz. Thanks!

[Candlesue]

Karen

Its really best to keep a separte account for your business.

What about your cleaning supplies?

I find it easier to use an accountant also, they can give you information about what records to keep.

I have heard quicken books is easy to use.

Susan

[karona]

I use the client's supplies. I may start one in January of 2008, since it seems to be important. I do have an accountant who got me started, but she said I should be able to do the returns myself.

[Young Spark]

Another sideote is that there isn't any sales tax for items sold online yet.

Not sure what you mean, but the IRS states that if your business makes more then $600 gross income annually, then your qualified to be taxed. Many affiliate programs are required to report this as well.

So either way, even if its online or offline, if your business generates more then $600 annually, then your paying taxes.

NOW... my suggestion to Sparatanic is to do as Dwayne recommended. Keep good records, track your income coming in and going out, check your inventory on a daily basis to make sure everything add's up (this'll allow you to find errors that could make you pay taxes on thing that may of not sold yet... as hard as it sounds, many have done it.)

I also recommend keeping a copy of all of your receipts for tax deduction purposes. What better way to save money then through tax deduction. Even donating to a few "tax deductible" charities is a good way to save some money

[dwaynegarrett]

Dwayne, is it absolutely necessary to have a business bank account? I have one checking account for me and my cleaning business, and I use MS Money to track all of my income. I have practically no overhead, so I just claim all of my income, minus some mileage. I also do my own taxes because of this.

I've been told to get a business checking account before, but since you mentioned it here, I thought I'd ask if it's really necessary for a one-person cleaning biz. Thanks!

It is not absolutely necessary, but according to IRS you need to be able to show that you are operating your business independently of your personal finances.

Besides, even if you don't want to open a bonafied business account, you can just open another checking account to strictly handle your business.

Welcome to the big leagues.

[wully00]

You definitely want to have seperate accounts. If the IRS decides in the next 6 years that it thinks your business is really just a "hobby," you'll pay dearly in back taxes. And one way to show its not is to have a seperate account. It can be just another seperate account in your name, just one your not writing personal checks out of.

[Young Spark]

Great advice in here

[karona]

Great advice in here

I agree! Thank you everyone!

[spartanic]

The first thing is to have a separate bank account just for the business so you can operate like a business.

Second is to keep good records. Track income, expenses, and mileage for business purposes.

Now you can do your tax return yourself with a software, but it is a whole lot easier to just keep good records and turn it over to an accounant to prepare the returns for you.

Another sideote is that there isn't any sales tax for items sold online yet.

Any ideas on how much it costs to outsource the accounting side of my business to another firm? I am considering using Quicken's 2008 Business software to manage all my business finances, however if I could I'd rather have an accountant handle all this.

Anyway, 100 percent of my business involves selling products to customers online so are you saying that I don't have to worry about taxes at all? Of course I would still have to report my business finances during tax season, correct?

[wully00]

Anyway, 100 percent of my business involves selling products to customers online so are you saying that I don't have to worry about taxes at all? Of course I would still have to report my business finances during tax season, correct?

I think the more important thing is where the customers are located, not whether it was online or not. And this is usually important for sales tax within your own state. I have to pay sales tax to the state of IL monthly or they penalize me... But only for the customers who I sell to within IL, whether they came to me to pick it up or whether they ordered it online it doesn't matter if they live within IL. Theres some exceptions but thats the simple version. On April 15th I owe both the Federal government and the State of IL income tax on any revenue I had, regardless of where the customer is.

Hope this helps.

[Young Spark]

Any ideas on how much it costs to outsource the accounting side of my business to another firm? I am considering using Quicken's 2008 Business software to manage all my business finances, however if I could I'd rather have an accountant handle all this.

Anyway, 100 percent of my business involves selling products to customers online so are you saying that I don't have to worry about taxes at all? Of course I would still have to report my business finances during tax season, correct?

Although it may seem a bit off topic, it may help your business effectively.

I suggest everyone who sells online hire (or outsource) a coder. This coder should be able to code a addon to your E-Commerce software that allows your sales data to be downloaded using CRON once a day or once a week. This data should be formatted to your financial software that you use. In this example: Quicken 2008 Business.

In the end, when it downloads automatically, you can save them to a backup HDD that is locked and you can track your expenses and assets using this data. At the same time, you'll be able to use your downloaded data to check what taxes you may owe (if your financial software permits it.)

I think the more important thing is where the customers are located, not whether it was online or not. And this is usually important for sales tax within your own state. I have to pay sales tax to the state of IL monthly or they penalize me... But only for the customers who I sell to within IL, whether they came to me to pick it up or whether they ordered it online it doesn't matter if they live within IL. Theres some exceptions but thats the simple version. On April 15th I owe both the Federal government and the State of IL income tax on any revenue I had, regardless of where the customer is.

Hope this helps.

Ah, the benefits of starting a business that is registered in Delaware NO SALES TAX!!!

[wully00]

Right on target! Thats a great idea.