Disclaimer: I am not a tax professional. I am not promoting any tax preparation company. You should consult your own tax professional and spouse when making any financial decisions.
The same signer of the Constitution that said ‘a penny saved is a penny earned,’ warned us of the certainty of death and taxes. I am sure we can all admit at one time or another we have wondered if death would be easier.
I have owned some type of home-based business for 29 years either part or full-time. In that time, I have never done my own taxes. My biggest reasons are because I want my money back and the ever-changing tax code. Did you know that the amount you pay to have the business portion of your taxes done is tax-deductible?
I call my tax professional the first week of January to schedule an appointment. I make it for February 2ND because it is easier to remember – Ground Hog Day! Why postpone this date? You know it is inevitable. If you owe, it gives you time to budget. If you are owed, you get your money back sooner. I have had taxes done on April 14th, and that is not the kind of adrenaline rush I want to experience again.
I keep every receipt in a drawer during the year. I tell myself that I will find some way of organizing them each year and it never happens. I sort the receipts as I am getting things ready for the tax professional. Items to look for are home repair, upgrades to your home, office supplies, cleaning supplies, real estate taxes, mortgage interest, car repair and restaurant receipts. There are several more, but this gives you a general idea.
Since you are running your business in your home, it is important to know the total square footage. Next you need the square footage of each room you use for your business in your home. Next, you need to give an honest number of hours per day that you are working. Your tax professional will need these totals to figure the percentage of home expenses to deduct, such as your lights, internet and landline.
Throughout the year, you should have some sort of way to record the mileage on your cars. You will need the total miles driven and total business miles. I also record miles I drive to volunteer because that can also be tax-deductible.
The year I decided that all of my sourcing, fees and income would go through one account made all of this so much easier. I am selling on four different platforms, doing some consignment, I did some advertising and promotions. PayPal is what I use and it actually does most of this for you.
I believe that the most important advise I can give is to be honest. Just because you sourced an item during your vacation does not make it a business trip. Your blogging at McDonald’s doesn’t make it a business lunch. Your new refrigerator is not a new laptop. Your cats are not your virtual assistants. You do not want your next business expense to be mileage driving to the IRS because you have been audited.
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