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Taxes have to be paid for your home business too. If you heard from somewhere
that, since you are running a home business you need not pay tax is utter
But there are some tax advantages for you. For e.g. You can include equipments used at your home for tax planning and can be clubbed with home business expenses. This obviously results in tax deductions for your business.
Tax, Tax and More Tax.
When you run a business, it can feel like you spend far too much of your time worrying about tax. Here's a quick guide to the what you need to know about tax.
What is listed below is quick list of things that will help you with your tax planning for your home business. With the help of your accountant, you can fine tune them.
What Do You Qualify For?
There are all sorts of tax breaks for home and small businesses, to try and make it easier for them to survive. To qualify for them, though, you will need to be using your home as the primary place where you do business. If most of what you do takes place in some space elsewhere that you rent, then you won't qualify for home business tax rules. You also are unlikely to qualify if you haven't set aside a specific part of your home as the 'business area'. Be prepared for the fact that you might be audited, to make sure that you are running a legitimate business from your home.
Records You Need to Keep.
It's quite obvious. Records on your home business need to be kept in order. This not only for tax purposes but for the general well being and progress or your home business.
Well kept records give you all the details about your customers, transactions conducted, profit and loss statement -- all can have tremendous positive impact on your home business.
You need to keep records of everything -- literally everything -- you spend on your home business. You should especially keep records of things when their use might be shared between personal and business, such any business-related travel expenses you run up on your car. If you have stock, you need to go through and inventory it at least once a month.
What You Can Deduct from Your Home Expenses.
There many ways you can claim tax deductions for your home business. Many utility bills, household equipments used in your home business etc can be effectively included in your tax planning for your home business.
Because your home office is in your home, you can claim any tax back that you pay on that part of the home. You can also claim back tax on part of your utility bills. For example, if your home is 2,000 square feet and you use 100 square feet for your home office, you can claim back 5% of your utilities. If you rent, then you can claim back this percentage of the rent, and if you have bought the house then you can claim it as a discount off your mortgage interest. Any equipment you have that depreciates (becomes worth less) because you use it in your business may also be eligible for a tax deduction.
When you work from home, you are legally self-employed. This can put you in a sticky situation, meaning that you have to pay for medical and other taxes that your employer would normally pay for you. In the US, for example, you will be responsible for your own social security and Medicare payments, while in the UK you will need to pay national insurance.
So the most intelligent move you can make with your home business is not to employ full time staff. Instead, outsource your work on a contract basis and this way you stay clear of medical and other employ taxes.
Get Tax Software.
If you're not sure where to begin, get some tax software. Choosing your circumstances from its lists and giving any additional information it asks for should show you most of the tax rules that apply to you. Here's a very inexpensive resource that tells self employed how to save 1000s in business taxes.
Get an Accountant.
If you want to save as much as you can on your taxes, don't rely on things you read on the Internet, or even on computer software -- get an accountant. They'll be up-to-date with all the latest tax laws, and will know thousands of tips and tricks that there's no space to list here. See if you can find one who will take a percentage of what they save you in tax as payment instead of charging a flat fee -- this is an ideal solution for you and for them.
Do Your Taxes Online.
Since the advent of Internet many things have gone online. Filing the taxes for your home business is one among them. Online facility eliminates almost all the paper work problems usually associated with tax filing.
Most developed countries now give the option to do your taxes online, eliminating a big paperwork headache. You may even find that your tax software can send its tax report directly to the online service, without you doing much more than clicking a button. Of course, if you do things this way, be sure to call and confirm that everything went through alright.
So from now on, make it a practice to your file your home business taxes online. If you are used to the old ways of filing taxes online, this may appear a bit difficult at first. But you will soon find the benefit of it and will begin to use the system for your home business.
Don't Be Late.
Whatever you do with your taxes, you absolutely must not file them late or pay them late. It's an all-too-easy trap to fall into, but there are automatic fines. Tax collection agencies will look upon you very unfavorably if you pay late, and are likely to start immediately charging interest on any money you owe them. Write your tax dates on your calendar and underline them in red. Twice.
So realize that taxes are not such a likable aspect of your home business. But absolutely necessary.
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