Choose the Right Business Structure
There are advantages and disadvantages to running your business as a Sole Proprietorship, Partnership, LLC or other type of corporation. Take a look and decide what’s really going to work for your situation. Then make sure you follow the rules for that kind of business structure.
Pay Your Estimated Taxes Quarterly When Necessary
Paying quarterly income taxes is a pain. You have to be ready for them, however, along with any other taxes your home business may be required to collect and pay regularly.
Make sure you’re saving up for these every month, so that it’s not a big hit at the time they’re actually due. Don’t skip paying them until the end of the year either, as you can get hit by penalties if you aren’t making appropriate payments throughout the year. Make sure you know the right way to handle this for your business structure. This is where an accountant, bookkeeper or tax professional may come in handy.
Keep Track of Income and Business Expenses
This is where having a business account can make your life much simpler. You won’t have to sort out business expenses from other expenses. With some business structures, it’s required to keep things separate from your personal accounts.
If you make a lot of purchases online, make sure you keep a record of what you bought, just as you would for any paper receipts. You can print them out if you’d like, but I’d still recommend having it saved on your computer, and back that up as well. Backing up business information that’s on your computer in general is a good idea. You don’t want to lose vital information if your hard drive goes bad.
Don’t just throw it all in one spot year after year. Make a new file on your computer for each year, so you can easily look things up at need.
Hire a Professional Accountant or Bookkeeper
It’s not always smart to handle all this yourself. Even though you will still have to gather all the paperwork and make the payment yourself, hiring a professional may save you money, as they may think of deductions you didn’t realize you could take.
Know Your Deductions
In general, business expenses can be deducted. Just don’t stretch too far in defining them. If you’re taking the home office deduction, for example, make sure your home office really fits the definition.
Know the Tax Forms You Need to File For Any Employees or Freelancers You Hire
If you have employees or pay freelance workers, you may need to file tax forms for the money you’ve paid them. Know whether you need to send a W-2 or a 1099 for each. Usually, if you’ve paid them more than $600 during the year, you have to send them a tax form.
And most of all, check the IRS website or whatever authorities handle taxes in your country, or check with a qualified professional if you need any help at all. This stuff really is important to get right. This is just general advice, for specifics you need knowledgeable help.