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Tax Strategies for Your Online Business
By Darrin Mish of Law Offices of Darrin Mish
When it comes to tax obligations, all businesses, regardless of the type, are in the same standing. The IRS requires that as an entrepreneur, you should report all of your income, file your tax return and pay applicable costs that are owed to the government. Hence, you will also need to file your taxes even if your primary business transactions are done online. Fortunately, many tax benefits, and even loopholes, that apply to regular offline ventures can also be utilized in online businesses. Knowing what these are, is especially significant for you to avoid dealing with IRS problems in the future. One major tax break that online entrepreneurs can use is having a home office. There is a big chance that business owners can qualify for significant tax deductions as most of the time, online businesses are done at home. Entrepreneurs just have to remember that using the house regularly and exclusively for business purposes will make them avail of the applicable deductions. For example, a dining room used by a family to have dinner in the evening and used as an office during the day will not classify under this tax deduction. Any given space or room must be mainly utilized for business endeavors like client meetings and daily operations, for it to qualify as a home office. Although you're given the freedom in dividing the time spent for each space, whether business or personal, you might want to keep it simple. For instance, it's a better option to claim that the room is solely used for business rather than say that 75% of the time, it's used for business operations and 25% of the time, for family gatherings. This way you won't attract IRS problems into your doorstep. You must also prove to the IRS that your home office is your principal place for business. Basically, since online businesses are done at home, entrepreneurs will have no problems meeting this stipulation. The importance of this requirement lies on the fact that the IRS needs to ensure that business-related activities are done in the confines of the home office, and not somewhere else. These two main requisites, when met, will definitely allow you to deduct many costs associated with your office and home. These include things such as rent or mortgage payments, insurance costs, utility bills, and property taxes. You cannot, on the contrary, deduct all of your rent or mortgage payment. The way it's done is usually through a percentage computation. For instance, you'll be able to deduct $250 from a from your monthly mortgage payment of $10,000 if 25% of your house is utilized as home office. In a year, you may actually save up to $3,000. This is essentially how you must deduct expenses related to your home office. Keeping all of your documents for your online business will definitely go a long way towards avoiding IRS trouble. There are some restrictions when it comes to your online business tax deductions. For example, you cannot claim for deductions that would result to a net loss for a particular year. To demonstrate, if your online ventures created approximately $50,000 in revenue but you could technically claim to have had $60,000 worth in deductions for the same year, then you're not allowed to claim or file a net loss equaling that $10,000 difference. You may, however, declare a net gain of zero. |
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