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Please Help Me Out Explaining Home Business Taxes

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moneyflow
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Please Help Me Out Explaining Home Business Taxes  Reply with quote  

I'm going to write a tax situation out as an example and please tell me how I would go about doing all this as far as keeping records and filing. I'm new to all this but need to learn how to do it because I am starting to earn money online.

This stuff confuses the hell out of me so talk to me in layman's terms.

Let's say I have a regular job and make around $30,000 a year.

On the side I operate a business online part time and earn let's say $500 a month.

My main expenses would be hosting, advertising and marketing tools which let's say cost me $200 a month in expenses so my profit is $300 a month.

That would put me at an additional $6000 a year gross on the side and $2400 a year in business expenses.

This is what I think I would do and correct me if I am wrong, plus tell me any additional things I need to know.

1. I keep a simple monthly cash flow chart showing money in and out.
2. I save receipts for all my advertising and expenses.

When it comes time to file do I simply fill out my regular job taxes and then an additional form for income earned online and send it in.

My questions are:

1. What proof do I have to show I actually earned that money? Can I simply do a screenshot of my computer and show commissions or do I have to make copies of my checks?

2. Do you have to send in all the receipts or do you just save that in case you get audited?

3. Am I eligible to increase the number of dependents on my W-2 at work to take home more money? Also please explain the quaterly tax payments thing and how would I do that.

4. How far can I push tax deductions? Example: gas, dinners with business associates, cell phone bills, etc...

5. If I'm guessing this right I'm thinking in my example situation my gross income combined would be $36,000 dollars and that's what would be taxed and that's what I could claim deductions on?

6. If I have multiple income sources online, do I have to fill out a form for each one with the related dedcutions or can I combine everything?

Sorry if this sounds like a dumb question, I am just not really experienced with this stuff and want to learn it in the simplest way possible.

http://www.MoneyFlowForLife.com | http://www.DanielCassidy.ws


Last edited by moneyflow on Sat May 31, 2008 2:29 am; edited 1 time in total
Post Fri May 30, 2008 10:24 pm
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coaster
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 Reply with quote  

Your record keeping plan is just fine.

#1 - I presume you'll have receipts of some kind? Invoicing, checks, account transfers? Hardcopy is best.

#2 - No/Yes

#3 - see below

#4 - very limited for home-based business; don't push it

#5 - see below

#6 - combine

Hey, I had to learn it once, too. And that was over 10 years ago; so pardon me if I haven't keep up or forgot too much.

The amount of additional income requires you to do one of two thing: INcrease your payroll withholding to cover taxes on additional income (#3), or pay quarterly estimated tax payments. You'll have to send the IRS enough to cover roughtly 1/4 of your estimated taxes on your net profit on April 15, June 15, Sep 15, and Jan 15. For your tax return, you'll have to file a "Schedule C" and on that form you pay taxes on your net business profit, so it's on that form that you list all of your self-employed income and your self-employed expenses. So your personal deductions will go on your Form 1040 Schedule A as usual, and your business deductions will go on Schedule C. (#5)

The IRS should have quite of bit of stuff on their website, just search on keywords like "self-employment income" and "schedule C" and "deductions for business expenses" Many of their publications are written to actually be semi-understandable these days.

Using tax software like Turbo Tax makes doing all this a whole lot easier. Smile

~Tim~
Post Sat May 31, 2008 12:12 am
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efflandt
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See "Self-Employed Individuals" on http://www.irs.gov/businesses/small/index.html

Generally you need to file Schedule C (or C-EZ) and Schedule SE. You may either need to "decrease" your W-4 allowances (see worksheet on back of W-4) or submit 1040-ES quarterly if you would owe more than $1000 tax year to date at the end of any quarter, or at tax filing time. There may be an underwithholding penalty if you owe more than $1000 at April filing time (with a few exceptions).

You should keep a journal of income and expenses (which could be a spreadsheet that you back up if not manually on paper) along with receipts. And expenses have to be business related. The above link has other info on business expenses and Publication 587 explains business use of your home.

Also check your state limits for underwithholding and whether you would need to file quarterly statements for that.
Post Sat May 31, 2008 10:42 am
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moneyflow
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Hey thanks guys. I think I am making this out to be more complicated then it really is. I'll think I take your advice Tim and just go out and buy some Turbo Tax software and Quicken to make my life a whole lot easier.

http://www.MoneyFlowForLife.com | http://www.DanielCassidy.ws
Post Sat May 31, 2008 5:35 pm
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coaster
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It'll take a little time to learn how to use it, but in the long run, it'll indeed make your life easier.

~Tim~
Post Sat May 31, 2008 6:12 pm
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