Thinking about starting a business. Need tax advice

[john_constantin]

Hey ya'll

I'm thinking about starting my own small business for the world wide web. I was wondering once tax time arrives what do I present to the taxman? I know that when owning your own business you have to save all your reciepts that pertain to the business, but do I have to present bank statements that shows what has been deposited for the past year.

I just want to make sure I have everything covered before I make the leap which could be several months from now. Anyways, any suggestions would be helpful.

Thanks, John

[MyTaxTutor]

Hi John:

If you are in the U.S.A., you simply need to fill out a Schedule C (Profit and Loss from a Business) if you are a sole proprietor. You are a sole prorietor if you have not set up any other legal form of doing business.

On your Schedule C, you list your gross income and your expenses to come up with a net profit which you then pay tax on. You are not required to include anything with your return such as bank statements or receipts. You would only need to produce those if you were to be audited by the IRS.

I often tell my clients, "You can put any numbers on your tax return you want, as long as you can prove them if you're audited."

Also, you can deduct any expenses that are ordinary, necessary and reasonable in running your business. For more information, I have a free newsletter for small business owners. You can sign up for it at
http://www.mytaxtutor.com.

Sincerely
JM Becker, CPA
www.MyTaxTutor.com

[john_constantin]

Originally Posted by MyTaxTutor

Hi John:

If you are in the U.S.A., you simply need to fill out a Schedule C (Profit and Loss from a Business) if you are a sole proprietor. You are a sole prorietor if you have not set up any other legal form of doing business.

On your Schedule C, you list your gross income and your expenses to come up with a net profit which you then pay tax on. You are not required to include anything with your return such as bank statements or receipts. You would only need to produce those if you were to be audited by the IRS.

I often tell my clients, "You can put any numbers on your tax return you want, as long as you can prove them if you're audited."

Also, you can deduct any expenses that are ordinary, necessary and reasonable in running your business. For more information, I have a free newsletter for small business owners. You can sign up for it at
http://www.mytaxtutor.com.

Sincerely
JM Becker, CPA
www.MyTaxTutor.com

Ah I see. Thats the 1040 form. Now the "write off" how does that work and whats the benefit of that?

Thank you for the link.

[pete]

You don't present anything to the taxman, except your return. If you are just going to be in business as a sole proprieter, you simply fill out the Schedule C, as noted above. You do this in conjunction with your normal 1040 tax return.

BUT - be prepared to back up any figures you do submit. Your best bet is to get a seperate checking account for your business and deposit all receipts in it. That means all receipts. Then, pay everything by check or debit card assigned to that account. That's all there is to it, with one exception.

If you have a dedicated room in your home that you use strictly for your business, you can use the ratio of the room size to the entire square footage of your home and deduct that percentage amount from your utilitiy bills and other home expenses. (Nope, not meals!)

[john_constantin]

Originally Posted by pete

You don't present anything to the taxman, except your return. If you are just going to be in business as a sole proprieter, you simply fill out the Schedule C, as noted above. You do this in conjunction with your normal 1040 tax return.

BUT - be prepared to back up any figures you do submit. Your best bet is to get a seperate checking account for your business and deposit all receipts in it. That means all receipts. Then, pay everything by check or debit card assigned to that account. That's all there is to it, with one exception.

If you have a dedicated room in your home that you use strictly for your business, you can use the ratio of the room size to the entire square footage of your home and deduct that percentage amount from your utilitiy bills and other home expenses. (Nope, not meals!)

Ah ok. Yeah I'm going for the sole propietership. Do you get money back like if you are employed at a job?

[RBbugBITme]

Originally Posted by pete

If you have a dedicated room in your home that you use strictly for your business, you can use the ratio of the room size to the entire square footage of your home and deduct that percentage amount from your utilitiy bills and other home expenses. (Nope, not meals!)

Pete, I assume a garage also counts as a room in your home?

[pete]

Yes, but they are pretty picky about it being used just for business. Having a table with a computer that is shared by the kids in a corner of a bedroom is not going to cut it.

Frankly, this is one of the touchiest areas of income tax, and it can come down to the gut feeling of the person who reviews your return. And that might be 5 or 6 years from now. So, you could be taking those deductions for years and then have to pay them back - with interest.

It's best to get some qualified opinions on this. Please don't simply take a deduction and then say Pete said it was OK.

[pete]

I started to add this to the post above, but thought I'd make it a seperate post.

You will also probably need to have a local business permit and register with your state to collect sales taxes. You may also need to have clearance from the zoning people and in some cases, neighborhood associations or apartment management.

You can get more info on that, including links to state sales tax agencies at www.sbfaq.com