Taxes and Your Home-Based Business

Taxes and Your Home-Based Business

October 1 2016

Running a business from home can have its advantages: you can work in your pajamas, take a break mid-day to enjoy lunch with friends or attend your child's school program, and set your hours to fit your needs. Because of this flexibility, you may lose sight that you are indeed a business. Rest assured the IRS hasn't lost sight of this fact; you want to make a profit and the IRS wants it cut. Claim too many deductions in your business, and the IRS will begin to focus on whether you're truly running a legitimate company.

Here are some tips on keeping the IRS happy as you run your home-based business:

Create a financial identity for your business

Maintain a separation of your personal and business finances. By doing so, the IRS will view your business as a legitimate venture. Begin by setting up your legal structure for your business and getting a Federal Tax ID number. Also, be sure to open up a business checking account. Only use this or a business credit card to pay business expenses. You can read more in our blog post on separating finances.

Create a space for your business

Do your best to separate your business from your home life. If you can't spare an entire room for your office, carve out a corner or a closet for your desk. Keep it clear of household clutter. Make sure there's a clear distinction between what you purchase for business use and what you buy for home use. You can write off some of your home office space come tax time. Bonus: you will be much more organized and productive in the long run.

Treat every day as Tax Day

Organize for taxes on a daily basis. If you don't, you could inadvertently be missing important deductions that could benefit your bottom line. Separate business and home receipts right away. The same goes for bills, invoices, and credit card and bank statements. Taking a few minutes every day will save you hours when you meet with your CPA. We recommend using the Schedule C Form as a guide for organizing your record-keeping. Again, it'll save you time, and your CPA will love you.

Want more guidance on running a profitable business from the comfort of your home? Contact us. We believe in the power of all entrepreneurs - from solopreneurs to CEOs - to run successful, profitable businesses.

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