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As we’ve discussed before, when it comes to making money from, starting your own business in an area you’re passionate about is a far more surefire method than any of the countless get-rich-quick scams out there.
Nonetheless, we hear stories every day from now-successful entrepreneurs who hesitated to chase their dream to a lack of understanding of how small business taxes work.
More often than not, many new business owners will often learn the hard way that they can save a large amount of money through tax write-offs and other simple tips used by other successful professionals who receive a massive financial rebate.
In many situations, people will choose not to start their own business simply out of a fear of filing their taxes wrongly, especially those who have always had employers take out their taxes via their W2 form.
After all, the tax system is incredibly intricate, but it’s also incredibly understandable to eager and hard-working self-starters. So join us as we cover the five most common tax mistakes new businesses make and how to avoid them to get the largest tax rebate possible.
5 Common Home Business Tax Mistakes
- Not Doing Your Homework – If you’re reading this article before you’ve started putting aside money for taxes, than you’re already ahead of the pack. With tax laws changing at the federal and state level every year, there are always new ways to increase your tax rebate being introduced along with other tax codes expiring. By spending a few hours doing research online, you can save the hundreds you’d typically give to a tax professional.
- Not Deducting Your Home Office – Taking advantage of the home office deduction is one of the simplest and most cost-effective means to cut your overhead when starting your business from home. If you use a “separately identifiable” space of your home for conducting your business and holding meetings, you can calculate your deduction by providing the percentage of that space within your home used for business or adding up $5 for each square foot used.
- Not Knowing What You Can Write Off – In addition to deducting such costs as your mortgage, utilities, home insurance, and other expenses incurred by your home office, there are a plethora of different deductions particular to a home business’s industry that exist for you to use. For example, if you run an entertainment or pop culture blog, any money spent on buying music and seeing concerts and movies can be written off. The same goes for food bloggers and their meals and fashion bloggers and clothes. While telecommuters rely on their employers to prove that certain costs are deductible, when it’s your own business, you can write off basically everything that is used for your work. But keep in mind that many deductions don’t go into effect until after you’ve made your first sale.
- Filing Under The Wrong Business Structure – One extremely common mistake small home businesses make is filing as a C Corporation, which results in double the taxation for both the corporation and its shareholders. Instead, you can choose from a number of options available to small businesses, such as filing as an S Corp in which you pay taxes through the profits accounted on your personal taxes, saving you from having to pay twice.
- Not Being Organized – No one said doing taxes is fun, and it’s also a lot of work. That’s why sp many people forget to save their receipts and keep them stored in an easily accessible location year-round. Getting a massive tax rebate is a lot like flossing; it’s something you need to stay on top of, but in the big scheme of things it’s relatively little work. Once you get into the habit of keeping your receipts organized and staying on top of changes to tax laws, saving money become second nature and you start doing it without even thinking about it.
So if a fear of filing your taxes is keeping you from starting your own home business, remember that the tax system is made for anyone to benefit from, but it’s up to you to take the steps to get the money you deserve.
If you can handle setting up your own business and working from home, managing your taxes and deducting your expenses should be a breeze!