Thousands of home-based businesses are started in this country every year. As more and more people make choices about their income-generating activities based on “Quality of Life” issues, the number of home-based businesses continues to increase. As an entrepreneur you have decided to create your own business and operate it from the comfort and of their homes, the home-based business alternative is no longer a novelty, but has become a powerful force in the economy.
The Tax Code has always had a number of provisions beneficial to businesses which are generally not available to “non-business” individuals (employees). In addition, certain incentives have been added to encourage small business development. As the number of home-based businesses has increased, so has the number of those able to take advantage of these business tax benefits.
It is important to set up your home-based business properly right from the start. If you’re already in business, it’s important to be sure you’re following IRS guidelines as you operate your business. In return for that, the government makes available a whole range of benefits to you as a home-based businessperson
Here are a few steps you can take to establish the fact that you are operating a home-based business:
1. Make the commitment to yourself that you are “in business”!
This is your attitude – and nothing to do with the amount of time you work in your business. Starting with a positive, committed attitude toward your business provides you with a personal framework – “I am in business!”
2. Open a separate business checking account.
One of the best pieces of evidence that you are “in business” is to have a business checking account. You can either use a name for your business, or you can open it under your own name(s). The important thing is that you use the account for business purposes only.
3. Register to collect sales taxes with your state department of revenue. (not necessary if your state does not have a sales tax, or if you have a non-taxable product/service)
In fact, if you do not collect sales taxes and you are later “discovered”, your state will require you to pay the taxes owed to them, plus penalties and interest, and you may not go back to your customer later and try to collect the tax then.
4. Obtain a Local Business Permit.
Many municipalities require you to register to do business in their jurisdiction. Obtaining a business permit provides clear evidence that you intend to conduct business.
5. Keep Business Records – and Keep Them Separate from Personal Financial Records.
If you’re going to be in business, you must keep sufficient records. The IRS requires you to keep records.
While you can use something as simple as a notebook, or an Excel-type spreadsheet, we usually recommend investing in a simple computer accounting software program such as QuickBooks.
This goes without saying but, this is only limited information. Anybody interested in starting and running a business from their home should seek advise from a tax professional.
JB
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