Steps to tax planning for home based businesses

Written By Steps To Faculty Published September 17th, 2010

Starting your own business, especially a home based business, can be trying and difficult in regards to tax planning. But there are many resources available to ease the stress of tax planning for your home based business. Take a look.

Step 1 visit the Internal Revenue Service

Starting your own business is complex today just like taxation is. However, managing the taxes for your home based business can be simplified by visiting the ultimate source for all American taxation issues-the IRS. At irs.gov, you can search for specific publications and forms and even research how your specific home business structure will be involved with any new tax law changes.

Step 2 Stop by the Social Security Administration

The social security administration (ssa.gov) is the second greatest source of tax planning for home based business. For example, if you will be contracting workers or hiring them, you need to have the correct forms as well as proper documentation of your payroll. Since payrolls are taxed heavily, even if you contract out work you still need to consider the impact on your business. You still need to account for a payroll tax for 1099 workers regardless of whether you pay for unemployment insurance or federal and state taxes on each contractor.

Step 3 Look at the Small Business Administration (sba.gov) portal

The Small Business Administration has streamlined its site to make it easier for home based business owners to find specific information, by industry, about the tax issues pending their home based business. Still comprehensive in nature, the sba.gov can also steer you in the right direction regarding how to account for taxation on any rounds of funding you receive for your home based business.

Step 4 Pick the right accounting method

Did you know that the method you select for recording your accounts can greatly impact how much you pay in taxes each year. There are two main tax accounting methods-accrual and cash. Accrual accounting means you record the sale whether or not you get paid for it and the sale counts in the current year taxes. Cash basis accounting, on the other hand, means you only record a sale when you actually receive the cash, whichever year that may be. For example, if I make a sale on December 31, 20xx and do not get paid until April 30, 20xx then I only record the sale for April 30, 20xx and pay taxes at that time. Accrual is the more chosen method because you can control you taxation more readily as you know each year what taxes you will be paying. But for cash heavy home based businesses the cash basis may be more appropriate when you are running low on cash.

Step 5 Join an umbrella corporation

An “umbrella” corporation such as mbo partners may be worth a look if you’re thinking about incorporating your home based business for consulting and other purposes. The corporation manages all taxation for you and even provides you with health insurance options, which can save you a fortune especially if you are starting out. Visit http://www.mbopartners.com/individuals.html

Remember, tax rules change constantly, so visit the above sites often for updates. Please visit stepsto.com for more great business advice.


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Investing in Your Destiny® & Coaching Program - Wealth Building Summit Dallas, Texas

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