This time of year is always a little stressful for home business owners. It’s tax time, and you need to be ready to prepare your taxes. As you get ready to complete your taxes, here are 3 things to consider:
1. The 1099-K Could Add Headaches
A few years ago, the IRS introduced the 1099-K to its arsenal of forms. The idea is that those who use third-party payment processors like PayPal might be fudging some of their numbers. The new form is issued by third-party processors to those with at least 200 transactions and $20,000 in receipts. The downside for independent contractors is that many of us are paid via PayPal, but our clients don’t realize they don’t have to issue a 1099-MISC anymore. This leads to double-reporting of income, the IRS demanding more money, and a headache as you try to prove that you have reported everything correctly. Keep careful track. If you use PayPal, consider downloading the reconciliation file to help you as your prepare your home business taxes.
2. Don’t Forget All of Your Tax Deductions
As you prepare your home business taxes, don’t forget about the deductions you have coming to you. While some of them, like office supplies and the home office tax deduction are fairly obvious, don’t forget about the following deductions, if they are applicable:
- Business travel
- Insurance
- Memberships in trade associations
- Costs associated with networking
You might also be able to a dependent care credit if your child is in daycare for part of the time. This can be a good tax break if you qualify since it is a better tax break than a deduction. A deduction reduces your taxable income, while a credit is a dollar for dollar reduction in what you owe — kind of like a gift card you can put toward your taxes.
3. An Accountant Can Be a Big Help
I’ve used an accountant for years to help me get my taxes done. If your tax situation is complex, or if you find yourself spending long hours preparing your return, it can make sense to use an accountant. I find that the time I spend preparing my taxes can be more profitably spent working. I make more during that time than the accountant costs. Plus, if an accountant is preparing your home business taxes, the cost is tax-deductible. Add up how much time you spend preparing your taxes. If it makes sense, you can consider turning to an accountant so that you have better use of your time.
Add up how much time you spend preparing your taxes. If it makes sense, you can consider turning to an accountant so that you have better use of your time. You still need to take care of some paperwork items, such as gathering records and preparing your profit and loss statement, but having an accountant do most of the work can help you stay better organized and save time and effort.
Plan ahead, organize yourself, and prepare. You’ll be glad you did when it comes time to file your home business taxes.
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