4 Tax Tips For Your Online Business
You probably didn’t think much about taxes when you started your online business, focusing on the thousand things you had to do to get your business up and running, and maybe fantasizing about the kind of money you were going to make. But now you’ve made some money, and you need to pay taxes on it. The very thought of managing forms and deductions may make you want to crawl under the carpet, but fear not, because owning your own business can be a real boon come tax time.
4 Tax Tips For Your Online Business:
Tip #1: Get A TIN
Tax Identification Numbers are useful for filing taxes, and have the additional benefit of impressing dropshippers and wholesalers with the legitimacy of your online business. When setting this up, consider carefully whether you want to be a sole proprietor or a corporation. This is a complicated decision, and you may want to consult an attorney, but basically the difference is that a sole proprietorship is easier and cheaper to set up, but does not separate business assets from personal, leaving both liable to seizure.
Tip #2: Take Advantage
Now that you’re a small business owner, you need to pay an additional self-employment tax of 15.3% on top of your regular income taxes. How is that helpful, you may ask? Well, you also get a whole new set of nifty deductions along with your taxes. These may include home office deductions, the cost of your equipment, business/travel related expenses, training/educational expenses, and payroll (even if your wife is packing orders in your garage, you can pay her $12/hour and write that off). Keep in mind with payroll that you have to send your employees a W-2 form at the end of the year, or, if they’re an independent contractor like the guy who designed the website for your online business, you need to send him a Form-1099 if he did more than $600 worth of work for you.
Tip #3: Don’t Wait Until The End Of The Year To Start Paying Taxes
You may owe more than you think, and even if it’s pretty much what you expected, shelling out $14,000 in one shot isn’t going to be fun. So pay an estimated amount every month. If you pay too much, you can always file a return at the end of the year, and it’s a lot more fun to get a check in the mail than a “request” for funds.
Tip#4: Keep Records Like It’s Your Job, Because It Is
Keep track of anything and everything. Use accounting software, or if you must, a super-sized filing cabinet, but if there’s any possibility you’re going to need a receipt, form, or even an email, then DO NOT throw it away. In the Wholesale Match office we have a mini-scanner, it looks like an umbrella when it’s in the case, and we use it to scan and digitally file absolutely every piece of mail we get. Keep the records for your online business at least five years, preferably ten.
These are a few tips to help you on your way, but laws differ state to state, and ultimately you should hire a CPA to look over your return, particularly your first year. And remember, honesty is the best policy. Fibbing to Uncle Sam to save yourself $800 is going to be the worst reverse-investment you ever made when the IRS rakes you over the coals. Hell hath no fury like the taxman scorned.
