This last week I had the opportunity to interview a tax consultant about tax issues that are easily confused when you have an online business. I have read so many contradictory articles and just wanted to nail some things down for myself and my other online business friends.
Disclaimer: I am by no means a tax consultant and do not have express knowledge of this topic. Please take the time to talk with a tax consultant and file your taxes correctly.
Here are the questions I asked and the answers I received.
- What does someone with an online business need to be? A sole proprietor, LLC, or a Single Member LLC? The first you will want to do with your business is figure out exactly how big or small you want it to be. This factor will determine how you go about filing your business. Most online businesses stay as sole proprietors. This means that there is no cap on the money they can make, but that they will have no permanent employees. This also means that they are not insured. If you are looking to eventually have employees and investors or even co-share a business with someone, you will be looking into being an LLC or what is called an S- Corp. This type of filing also provides insurance in case you are sued. If you are in a type of business where you have a high possibility of being sued, you may want to go with a single member LLC. This gives you that extra protection, although even as a sole proprietor, there are many options to insure yourself against a lawsuit. You can actually get your own insurance, as well as, visit a site like legalzoom and have some disclaimers made for your particular business. Remember that as an S-Corp, LLC, and Single Member LLC you have the option to have employees under you, but at the same time, if you have employees, you must with hold medicare, taxes, and social security from their paychecks.
- When does someone need to send in quarterly estimated taxes? If you are filing jointly with a spouse and your annual income exceeds over 50k, you will need to send in estimated taxes to the IRS quarterly. If you are filing by yourself, and you reach 50K, you will also want to send in estimated taxes. Basically, you want to send in 30% of your profit quarterly to make sure you do not owe anything. This is kind of a fine line because what you don't send in you don't get back even if it is over the amount. They charge you a holding and processing fee. Also, if you have any possibility of zeroing out, you will be missing out some money. Truly in this case, I would contact a tax consultant about what you should do and let them examine your exemptions and profits.
- What are some basic tax deductions that someone online can claim? - Internet - Hosting - Domain registration - Conferences and travel - Advertising - Design and Maintenance - Supplies ( business cards, home office, craft supplies) - Education - Food up to $40 a day -Driving ( car maintenance and insurance)
- How and when can I depreciate equipment to be a tax exemption? If you purchase a piece of equipment that costs a minimum of $1500 and has the lifespan of three years, you can depreciate it. You can figure out this amount by dividing the amount spent on the product by the lifespan. You can then take that amount off your taxes every year along with your other exemptions.
- When do I need to give someone a 1099? If you hire someone to do a specific task, and you pay them $600 or more, you must give them a 1099 by January 31. It is best if you get the contractor to sign a W-9 before he begins the job. This form will give you all the information you need to send a 1099 later in the year.
- What are some useful book-keeping tools? Quickbooks is a good way to send invoices to customers and also keep up with regular book keeping tasks. Another tool that makes this job a little easier is a physical product called Neat Receipts. (Affiliate link) This allows you to scan all your receipts and organize them into the proper places on a spread sheet. It definitely cuts down on the paper mess and allows you to be more organized! There are also some really helpful book keeping journals for when you are on the go, or if you just prefer to write everything down yourself. You can find them here. (affiliate link)
These are some of the questions I asked and the basics that I have learned. There is so much to this tax business, and I am so glad that there are professionals out there to help sort through everything! It is by no means a shame to consult one, actually I would think that it is probably the smartest thing to do. Considering that many companies have gotten themselves into a huge mess trying to file their own taxes. So do your best to know all you can about your company taxes, but in the end, don't be afraid or ashamed to let a professional take care of it for you. In the end, I am sure you will be glad you did!