Maintain Detailed Records
No one expects or wants to be audited by the IRS, but if you are, you need to have documentation to back up your claims. Keep detailed records and receipts of all business purchases, activities, and payments received. In doing so, you stay protected from audits and also make the process of filing taxes much smoother.
Get the Home-Office Deduction
The home-office deduction is exclusive to home-based businesses. It can provide you with a significant tax break, but you will need to be strictly self-employed and working from home to leverage it. Additionally, your home office space has to be reserved and used exclusively for business purposes. If you want more information on home-office tax deductions, consult the providers of tax services in West Hollywood. You can also research the web.
Retirement Savings
According to the Internal Revenue Service (IRS), tax-deferred retirement plans for the self-employed include a Traditional or Roth IRA, Solo 401(k), Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE IRA), or Defined Benefit Plans. Professional tax preparers can break each option down further to help you better understand the concept.
Employ Your Family
If your spouse or children help you with your home business, you can deduct their salaries as long as you pay them fairly, file a W-4, and otherwise account for their employment as you would with any employee. It is also important to follow state and federal Child Labor Laws. Seek more information on employing family members from the IRS.
Deduct Health Insurance Premiums
Home business owners might be eligible to deduct long-term health insurance premiums for themselves, their spouses and dependents, and any employees receiving coverage. This includes both medical and dental. However, the deduction cannot exceed the income you earn from your business.
Know Your Financial Status & How to Estimate
The IRS says that a business owner must pay taxes as they earn or receive income during the year, either through withholding or estimated tax payments. If you expect to owe $1,000 or more in taxes, knowing the financial status of your business is the key to success. This will let you plan ahead for expenses that will benefit your business and pay taxes promptly when they are due to avoid penalties.
Final Words
One of the greatest virtues of starting a home-based business is the tax breaks you can claim. However, understanding what is considered a business expense and tax laws like business structures, quarterly payment schedules, and the “Exclusive Use Test” can make your head spin. Working with an experienced provider of tax services in West Hollywood can help you avoid mistakes and achieve the best possible outcome when paying taxes.
About Us
We are a group of tax specialists. We also write content to share our expertise and knowledge of the complex world of taxes with our readers.