When you start a small business, you want to make sure that you get off on the right foot tax wise. There are simple steps that you can take to ensure that your business is set-up correctly and that you are making the right moves so that when tax time comes, you will be prepared.
Get a Tax Identification Number
You are not going to want to use your social security number for your business taxes. You want to create a degree of separation between your business and your personal income, and the best way to do that is by getting a tax identification number for your business, which you can easily get from the IRS website. As soon as you legally set-up your business, you are going to want to get this number. It can be used a variety of ways to help you manage your business.
Create a Business Plan
If you are the only employee of your business to start, you want to make sure that the IRS will see what you are doing as a business, and not as a hobby. With a hobby, you are not expecting to make profit in the next few years and you are also not allowed to deduct losses. With a business, you expect to eventually start to turn a profit in a short time frame and you are able to deduct loses from your taxes.
You need to make sure that your endeavors are seen by the IRS as a business effort and not a hobby, especially if you lose money in the first year or two. The best way to show that you are a business is by creating a detailed business plan that includes information about your marketing and management plan for your business. Make sure that you continue to update and track your progress within your business plan. That way, if the IRS questions your filing, you can provide them with evidence that your endeavors are business-related, not a hobby.
Set-Up a Documentation System
Next, make sure that you set up a system to document you expenses, income, and other business activity. If you need to drive for your business, set up a car log where you keep track of your mileage and the purpose for each drive. You can also use an app to track this information.
Keep track of all your expenses and make sure that you accurately track your income. One of the best ways to do that is by setting up an account specifically for your business transactions and investing in some software that will help you keep detailed track of all expenses and income.
As you start up your small business, take the time to do it properly. These steps above will make it easier for you to do taxes when tax time roles around. To get started on the process, contact resources such as Jeffrey Beebe CPA.Share