Taxes and Accounting

You have to pay every quarter, but also your taxes will be substantially more complicated than the average person's because you will have numerous deductions that they do not have. Due to the complexity of your taxes you should never do them yourself. Having a professional do them not only lowers the chance of an audit, but it also will likely save your money as the professional knows exactly what you can deduct. Additionally accounts are fairly cheap, you can get your taxes professionally done for only a few hundred dollars, and of course, its tax deductible.

Still though, even if you do have your taxes done professionally, there are some things you should know.


Expenses
It is fairly common knowledge that you can deduct business expenses, but what exactly counts as a business expense? I've outlined the various deductions in the list below.

1. Supplies - Anything you use to run your business can be deducted. This includes paper, stamped, envelopes, pencils, ink cartridges, etc. You can even deduct the gas used to drive between meetings (you get a credit for each mile driven).

2. Merchandise - If you sell merchandise the amount you actually paid for that merchandise, including freight costs, is deductible. Also if you make your own merchandise the amount you paid for the supplies is deductible as well.

3. Employees - Wages and benefits that you pay your employees, if you have them, are deductible. You need to keep track of how much you pay each individual person as you will likely need to send them either a 1099 or a W2 at the end of the year. Also make sure you send employees a W9 to fill out before you pay them. You can actually deduct a portion of your health insurance costs if you are self-employed as well.

4. Equipment - Any equipment you require for your business is deductible. Your printer, your computer, your telephone, a fax machine, if you need it for your business you can deduct it. Even if you use your computer for personal things too you can still deduct all of it because without it you wouldn't be able to run your business. Software would also fall under this category.

5. Services - Your phone service, your Internet service, web hosting costs, advertising costs, credit card processing fees, these things can all should be deducted. SEO - Search engine optimization or submission could be grouped under advertising as well.

6. Education - You can deduct employee training costs, and since you are an employee of yourself you can deduct your training costs. So if you buy a new book on server administration, or if you subscribe to a webmaster information content site, these things are deductible.

7. Home Office - If you work from your home or apartment you can deduct that as well. Not your whole house to be sure, but a percentage of its value or a percentage of your rent. You will also be able to deduct a portion of your utility costs, so be sure to save a record of those. You should figure out in square feet exactly what percentage of your home you use for business.

What you can deduct is not limited to expenses accrued only during the previous year. If you bought a monitor 3 years ago and still use it but never deducted it, you can deduct it now.

So, now that you know what can be deducted, you need to keep track of your expenses. I find a simple spreadsheet or database will work fine, but if you like you can buy one of the more expensive software suites. You should of course save all receipts or invoices related to the expenses. One easy way to do this is to get a business credit or check card and put all expenses on that. Then, not only will you have the receipt, but you'll also have the card statement listing the expenses. To get a business bank account you usually need to either have at least a DBA (doing business as) or higher (such as an LLC or S-Corp) and an EIN (employer identification number, you get it from the IRS). Once you have a business bank account you'll be able to cash checks made out to your business and get a business check or credit card.

Income
Income isn't nearly as complicated as expenses but is at least one thing you should know. It is your responsibility to keep track of how much you make. At the very least you should record each check you receive in a database or spreadsheet before you cash it. If you are relying on your income sources to send you a 1099 you may be in for a surprise, as they sometimes forget or the forms may be lost in the mail, or if you have a corporation they don't need to send you one.

Paying Taxes
Your taxes will be due on April 15th just like everyone else, but you will also have to pay quarterly taxes. Quarterly taxes can be paid either by estimating how much you've earned in the current quarter, or by using your total tax liability from the previous year and dividing it by 4. If you have a question about quarterly taxes you should ask your accountant. Additionally you will need to send anyone that you paid more than $600 a 1099 form by January 31st for all income earned in the previous year.