United States is a country of entrepreneurs. There are millions of entrepreneurs who enjoy pursuing their dream business. Sure, some of you enjoy the paperwork and confusing tax issues arising from owning your own business.
Many entrepreneurs are considered “sole proprietors” or “independent contractors” for legal and tax purposes. This is true whether you have a hobby into a business, selling an indispensable widget or providing services to other parties. If a person working alone, log business income on your personal income tax return. Here are some guidelines and things to keep in mind as you pursue your entrepreneurial spirit.
Schedule C – Form 1040.
If a person working alone, you are obliged to keep your business income or loss on Schedule C Form 1040 to report. The income earned by your company is taxable to you as an individual. This applies even if you have no money of the company. While you must report your gross income, you can also order business expenses incurred in generating that revenue reduction. If your efforts result in business losses, losses will generally be deducted against the total income from all sources, subject to special rules relating to whether your company is considered a hobby and as something that ‘risky. ”
Home Based Business
Many self-employed outside their homes and are entitled to the percentage of certain costs relating to parts of the house used as offices to reduce. This may include payments for utilities, telephone, etc. You can also qualify for this deduction claim if the administrative tasks from home or store inventory there. If you are outside your home and have additional offices in other locations, you can also make your commuting between the two locations into deductible transportation costs. Since most of the self-employed are working more than 40 hours per week of traditional, there are many pieces that can be applied for benefit. Unfortunately, we found that most businesses miss the cut because they were not aware of them.
Self-Employment Taxes – The bad news
A negative aspect of the entrepreneur is taxes. All salaried persons subject to automatic deductions from their pay his FICA, etc. are often not self-employed running a formal payroll for themselves, the government must recapture taxes by means of self-employment tax. Simply put, you are required to self-employment tax paid 15.3% of your net income to $ 87,900 for 2004. To net income of over $ 87,900, you pay more tax at a rate of 2.9% on the excess.
In an interesting twist to the enigmatic nature of the tax code shows, you may make a partial deduction for self-employment tax. Simply put, you can half your independent tax reduced from your gross income. For example, if you pay $ 10,000 in self-employment taxes, you are entitled to a reduction in 1040 profit of $ 5,000. Many entrepreneurs miss this deduction and pay more money in taxes than necessary.
Health Insurance Reduction
It was a very messy area for self-employed, that is to say they are, you will receive a small tax advantage when it comes to your health insurance bill. This is a particular burden for small business owners when considering the astronomical cost of health insurance. All this has changed and now you can get 100% of your health insurance costs as business expenses to deduct.
No tax deduction
Unlike salaried sit in the cab, you are not subject to withholding tax on your salary. While this sounds great, you are required to pay quarterly estimated taxes. If you do not make payments, you are exposed to punishment, but punishment is not the biggest concern. A dangerous pitfalls and self-employed not have to pay estimated taxes quarterly and then caught the end of the year without sufficient means to pay your taxes. IRS will not be happy if you fail to pay your taxes and you will suffer the consequences in the form of penalties and interest. Make sure you pay quarterly estimated taxes helps avoid this and it is strongly recommended that you follow the action.
Record Keeping
You need a complete overview of all business revenues and expenses. Simply put, document archiving system everything.Create for each month and file every receipt, etc. All business travel must be documented, including car-kilometers that you make when performing business tasks. Office supply stores sell business travel books that you can save on your car and use when you travel. If in doubt about documenting something, do it!
Finally,
As an independent individual, your focus and time to your business a success. Your focus is not on the complexity of tax legislation and how the amount of tax you owe limit. If this article is new to you, then you should probably pay more tax than necessary.
