Entrepreneurs ask common business tax questions, so don't feel as if you're the only one who could use more instruction on how to plan for and file your taxes. Studying the answers can also raise issues that you didn't even realize you ought to consider. Start with these 5 common questions:
1. When Do You Have to File Form 1099?
One of the best ways to expand your business as a work-at-home mom is to hire independent contractors. The contractors benefit from the flexibility of working from home as well. The IRS expects you to report payments you make to them that exceed $600 during the tax year. You'll have to file Form 1099 with the IRS, and send it to the independent contractor as well.
2. Are Partners Taxed as Employees?
If you and another work-at-home mom or other business owner are partners, you'll both have to pay self-employment taxes. The IRS doesn't not consider you as an employee of the partnership. You'll have to file Schedule K-1, reporting your net earnings and paying any taxes owed. You may be able to skip paying self-employment taxes quarterly, if a combination of your credits, business losses and deductions will result in you owing less than $1,000 in taxes. Get the help from a small business tax attorney or accountant to assess your personal situation, if you're not sure how to figure out what you'll owe.
3. Is the Money You Use from Your Business Bank Account for Personal Use Considered Business Income?
Co-mingling your personal and business funds and expenses is not a good idea. There are times though, where you may forget your personal debit card and charge expenses to your business bank account. You have to count that money as business income. You don't get to write it off, or deduct them when filing taxes. If you do this a lot, it can be problematic for you because that's more business income you have to pay taxes on.
4. Can You Take a Business Deduction for Using Your House or Apartment?
A major tax benefit you have as a work-at-home mom is the ability to take deductions for the business use of your house or apartment. You meet the "principal place of business" requirement because you work from home. You also have to prove "exclusive and regular use" of your home for business. If you store inventory at your home, then you don't have to prove exclusive use.
5. Do You Need to Collect Sales Tax?
It depends on your state laws as to whether and when you have to collect sales tax. The department of revenue in your state is the best place to get answers. You can find a link to your state's department at http://www.taxadmin.org/fta/link/default.html. It's important to find this out before selling product, because you'll have to pay the sales tax you should have collected, if you didn't.
Adjust your tax planning or business model as needed based on these common small business tax questions. Get additional help from a professional to minimize your personal and business tax liabilities.
Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.