Certified Online Casinos GuideBy Ellen Smith
|Level:||Jun 8th 2007|
It may seem easy to start your own home-based business on the Internet. All you have to do is to create your web page with affiliate links. But donât forget to dot all your iâs and cross all of your t's. In other words, cover yourself, when it comes to taxes.What you have to do?
Register your business name with the city government. You may be charged a small fee when filing this legal document with your local government.
Apply for an Employer Identification Number with the Department of the Treasury (IRS). To file for an EIN, you will need to complete Form SS-4. You can find these forms in post offices, public libraries, online, or by contacting the IRS. This document identifies you and your business with the U.S. government and you will need this number when you file your taxes.
Check with your state government to determine if you need any specific licenses. Such as Retail Sales Tax Permit if you are planning on selling items offline or online.
Open a Business Account at your local bank once the money starts to roll in. Donât use the account of your family. In this way you wonât make any confusion.
A part of your income will go to your State and Federal Government at the following rate, on a quarterly basis:
- States Taxes -- 3.7%
- Federal Taxes -- 11.3%
- Social Security -- 12.4%
- Medicare -- 2.9%
For the first year you will have to make precautious estimations because you have no idea what you will be making. Anyway, you will only pay what you owe against that of your expenses (your net income). For instance, letâs say you will have $3000 in expenses during the year and in your first year you will make $6000. In this case you would report the following:
$6000 (Money Made) - $3000 (Expenses) = $3000 (What you owe)
This sum would be divided between the four quarters within the year and paid to your State Government and the Federal Government.
In case you will be making more and you have paid in for one quarter you will have to modify the calculations and divide the amount between the remaining quarters.
The following is what you will submit to the Federal Government:
- Federal Taxes-11.3%,
- Social Security-12.4%,
- Medicare payment-2.9%.
Your taxes are estimated on the following dates throughout the year:
April 15 - June 15 - September 15 - January 15
If you want more detailed information you can read IRS Publication 505 the part with Estimated Tax payments.
Keep in mind that you are not required to make estimated tax payments until you have income not subject to with holding on which you will owe tax. In case you don't make your first payment until a later period, you have to divide your entire estimated tax by the number of payment dates remaining. For instance, if you three payment dates pending, you would pay one third of the total tax by June 15, the other third by September 15 and the last by January 15.
Below is a list of some of the expenses you can deduct.
Your home mortgage. If you use a room only for managing your business then you can have this deduction. There are a few types of formulas to determine the percentage of your home that is used for your business.
The most used methods are: ânumber of rooms" and the "area method". It is better to use the "area method" because usually the houses donât have all the rooms with the same size. The area method means you would take the area of your home office divided by the area of your home.
Your Office= 10' X 10' = 100 square feet
Your home is 1000 square feet
Your deduction = 100/1000 or 10%
Indirect Expenses. This kind of expenses will only help you to deduct the area percentage (the area percentage calculated above) of the total cost. The indirect expenses would include such things as:
- House payment
- Garbage collection
- Internet connection (if other people are using the Internet)
- Direct Expenses â the expenses related only to your business.
- Business account bank charges
If you want to manage all your expenses and work easy with spreadsheet software, you can purchase a small business accounting package such as QuickBooks or Peachtree Accounting.
For sure there are other things of what you need to know about taxes. Anyway, the things listed in this article give you a beginning about what you will have to be aware of when starting a home-based business. As your business will expend, your CPA will assist you and keep you on the good road to your success on the Internet.
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