The very word “taxes” is scary enough, but if it’s your first year doing business, it can be outright terrifying. Many business newbies have trembled at the idea of taking on this crazy financial time. However, if you keep the following in mind, you should be on your way to a nice healthy tax season, free of unnecessary stress.
1. Receipts are Vital
If there’s one thing you learn from this blog post, let it be this: you have to save all your receipts if you plan to claim tax deductions! (And you WANT tax deductions.) You can claim your business expenses on your taxes, however, if you don’t have the documentation to back it up, the IRS might not be so friendly if they ever question your claims. If this happens, you’re going to be in a world of hurt!
Every trip, every piece of food you eat during a business meeting, every time you buy more supplies for your office, save the receipt. It may be annoying, and you definitely need to have an organizational system in place – but do it, or pay the consequences later.
2. New Tax Forms Pop Up and it’s No Big Deal
Last year there was a big stink in the ecommerce world about the 1099-K. It was a new tax form that according to everyone who just learned about it was going to end online selling once and for all. Every ecommerce store was going to grind to a halt.
Of course none of that happened, and the 1099-K turned out to be fairly boring. And that’s what most new tax forms are – boring, and something else you have to file away when you’re done. New forms are no big deal and often are extremely helpful if you follow the instructions to the T.
3. Self-Employment Can be Expensive
Back when you were a wage or salary worker you had a lot of your extra taxes paid for by your employer. Employers paid part of things like Medicare and FICA taxes, and filing your income taxes merely consisted of filing in the info from a W-2 or two.
Not that you’re self-employed, though, that all changes. You’re responsible for reporting and paying taxes on every shred of money that comes through your business. Also, as you become successful, you’re responsible for paying the government quarterly estimated taxes (QETs) every few months instead of once a year. If you don’t pay them on time, they can accrue interest that will be very costly in the long run. Not sure if you owe quarterly estimated taxes? Check out Outright’s “Who has to pay quarterly estimated taxes?”
4. Mistakes Can be Fixed
Did you just now realize you totally goofed on your April taxes? Do you fear for the safety of not only your finances but your business, spouse and dog? Well it’s time to settle down because you actually have options!
You can mess badly and still be okay. The IRS does let you go back and amend tax forms after you’ve filed them. Form 1040X is an example of a form you can file to fix a goof on your forms. That being said – try to get it right the first time for less stress!
5. You Are a Business
This is a common mistake many small business owners make, especially in the online selling business. If you make money on the Internet, either selling items or offering a service like freelance bookkeeping, then you are part of a business.
It doesn’t matter if you think of it just as a hobby or as “extra fun money.” The IRS thinks you are a business and will treat you as such if you make over $400 in income in a year. The best thing to do is to act like a business yourself, as this will help you make better decisions for it down the road!
Overwhelmed by taxes and not sure what you owe, to whom, and when? The Online Sellers Tax Guide is a short read but it will get you oriented to the new taxes you have to pay as a self-employed person. Of course, if you have questions relating to your specific case, be sure to contact a financial professional who deals with businesses like yours.
This guest post is brought to you by Outright.com, the alternative to Mint for business. Sign up today, import your financial accounts, and enjoy a less taxing tax time!
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