TAX Basics For Startup Home Businesses

I don't claim to be an accountant, nor very well versed in theart of creative tax preparation, but I do have a bit ofexperience in handling the day to day and month to month taxes.For the past five years, I have learned first and foremost thatthe most important thing in business is to keep accurate recordsfor tax purposes. I always dread the end of each physical year when it's time todo the annual tax returns. It can be quite overwhelming for abeginner, but don't be scared... the IRS is very helpful ingetting you on the right track and providing information to helpyou get through all the forms with a minimum of hair loss.If you will be generating an income from your business, (whichis your whole purpose right?) you will need a federal tax IDnumber so the tax guys can associate your business to your name.This doesn't sound like much fun, but believe me, it's better todo it right the first time around than to have to deal with themafter they discover that you have been running a business andnot claiming your income on your taxes. You can get all the IRS publications on how to get your FederalEmployers Identification Number (FEIN) fromhttp://www.irs.ustreas.gov/ which will also provide you with awealth of information regarding business startups, recordkeeping and and tax information.You will need to get a state sales tax identification number.This number is to identify you and help you keep track of yoursales tax. You will need to charge a sales tax on tangible itemsthat you sell. Sales taxes are based on your geographicallocation, so you will need to know what your state sales taxrates are and what the policies are for your particular state onsales tax and taxes on services. You can contact your local taxagency for assistance.There are significant tax savings for those who are running ahome based business. You are entitled to certain credits,deductions and allowances. In order to claim these savings, youmust first and foremost keep accurate records of the dailyworkings of your business.Since you will be "self-employed", you will be responsible forpaying your own income tax, social security and medicare as wellas any employee taxes if you have any employees. Property taxand sales tax are also your responsibility to report and paythem in a timely manner. Failure to do so could result in somepretty stiff fines. The IRS provides publications which are very helpful forstarting a home based business. It would be a good idea for youto call your local IRS office and request their business startuppackage. They are more than happy to send you anything you needto start your business off on the right foot when it comes totaxes. I personally recommend the following booklets along withthe startup publication: Tax Guide for Small Business (Publication 334) Business Use ofYour Home (Publication 587) Self-employment Tax (Publication533) Tax Withholding and Estimated Tax (Publication 505) These booklets will provide you with all the necessary detailsto get you started. It will also contain a list of otherpublications that you may find useful and will guide you throughthe necessary steps for getting right with the IRS.Every transaction your business makes, will have an effect onyour taxes. You make a sale, you will owe sales tax in mostcases. This tax is reported monthly on a form ST-1 which willautomatically be mailed to you prior to the end of each monthonce you have established your state sales tax ID number. Youwill also need to check into industry specific taxes. Forinstance, I have to file a quarterly ST-8 for my husband'sbusiness, which is a Tire Tax form in which we must collect andpay a "use tax" for any tires that are sold.Home based businesses also have certain tax advantages. You maybe eligible for deductions such as a portion of your mortgageinterest, auto expenses, phone expenses and depreciation forequipment such as your computer. Other tax deductions are foritems such as certain membership fees related to your business,postage, software used for your business and copying andreproduction costs such as business cards and flyers.Dealing with business taxes can be very intimidating if you'venever done it before but it doesn't have to be. Most taxagencies are very helpful in answering your questions andhelping you get the proper forms. If you make a mistake in yourtax forms, don't worry -- the tax agencies will find the mistakeand correct it, but it's best to make sure you get it done rightto save any penalties incurred if mistakes are found by the taxguys.