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Poor money management is one of the top reasons that small businesses go out of business. They don't set aside enough money from profits to pay taxes, and they get in trouble with the IRS. The first thing you should do with your profit is to set aside a quarter of the money in a separate business account for taxes.
Always keep your personal and business financial records separate. If you write business expenses out of your personal account, you will severely mess up your records. That's bad enough during any time of the year. But when it comes time to pay your taxes, you'll have an accounting nightmare.
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Home Office Deduction
Using part of your home as a home office can have great tax advantages, but you must be very clear and deliberate with how you use it. According to the tax law, your home office must be "exclusively and regularly" used for business purposes.
In other words, you must have one room that is "all business" to qualify for the tax deduction. You can't also use this area as a kids' playroom or television room. This is a great benefit if you work from home.
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You can use the new simplified method in most cases to calculate your home office deduction. Just multiply the area of your home office (up to 300 square feet) by $5, the prescribed rate.
Check with one of our Endorsed Local Providers (ELPs) for more information.