Do You Look Like A Business?
When beginning a home business it is very
important that it look like a business not a hobby. IRS allows deductions
for expenses for a business but not for a hobby. IRS allows deductions for
expenses for a business as long as you make a profit 3 of the first 5
years.
To look
like a business you need the following:
1. A separate business
checking account. All income needs to be deposited into that account
with a note in the register what the income came from (and a matching
invoice for that income). All expenses need to come out of this checking
account (or a separate business credit card) using notes in the register
explaining all expenses. IRS wants to see a clear separation of household
money and business money. Take personal draws from this account when you
have acquired profits.
2. A seperate credit card that is just used for business. Use the business checking
account to pay this bill as well.
3. A merchant
account so you can accept credit cards for sales. Merchant
Accounts accept Visa and Master Card with additional fees for Discover
and American Express. Setting up a business account with Paypal
is also advisable. Studies have shown that customers will spend 36% more
using a credit card than cash.
4. Business
Cards to give to potential customers and contacts.
5.
Advertising online and offline. Advertising for clients shows IRS you are
a business working to make a profit.
6.
Bookkeeping records pulling in all income and expenses from your business
checking account, business credit card and cash (I hope you never pay cash
for business expenses). QuickBooks,
Quicken,
and Microsoft
Money all work well for small home businesses. If you have multiple
products I suggest QuickBooks for better record keeping. Monthly receipts
and invoices to back up all expenses and income.
7. A
mileage log of every where you go and every mile that is connected to
business and every mile that is connected to volunteer activities. This is
a huge deduction each year.
8. I suggest reading the book Tax
Savvy for the Small Business and Tax
Savvy Guide. They are very valuable in telling you what can be
deducted in your business.
This article was written and copyrighted by Kay Green
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