Getting a tiny business owner brings with it an entire host of challenges. Not merely are you concerned with taking good care of your client’s needs, getting paid and paying your vendors. You also have to be worried with remaining compliant with federal and state laws as well as local guidelines. Little businesses proprietors, especially only proprietors, have reached an increased risk of audit. The us government believes that self-employed people are really under-reporting their income and over-reporting their expenses. Regarding to the website Taxes Help Online, “You might be shocked to learn that 20% of all business audits involve disallowing deductions because the RATES reclassifies the small business as a hobby under the so-called ‘hobby loss’ rule. ” Internal Earnings Code Section 183 (Activities Not Engaged in To get Profit) limits deductions that can be claimed when an activity is not engaged in for earnings. IRC 183 is sometimes referred to as the “hobby loss rule”. Because a tiny business owner, it is your responsibility to be sure your business is looked at as a legitimate business in the eyes of the IRS and not a spare time activity. Win at LinkedIn
Below, I have detailed some smart business methods that wont only help you define and expand your business, but actually will also help you document that you are running a real business and not merely performing a spare time activity.
1) Write a business plan. There are lots of local small business support centers which will help you to put your plan in writing. For example, the Small Business Administration has both local and online resources to assist you.
2) Determine your legal structure (LLC, Partnership, C-Corporation, S-Corporation, Sole-Proprietor).
3) Get an Employee Identification Quantity (EIN) from the IRS . GOV.
4) Open another standard bank account for all of your business transactions (deposits and expenses). You need to keep your personal and business transactions individual.
5) Establish an independent line of credit or credit card to use with your business. Set personal expenses on a personal card and set business expenses on a business card.
6) Keep your business documents organized. The National Federation of Indie Business recommends keeping business records and receipts for at least seven years.
7) File completed duty returns on time. This kind of would include all required schedules and signatures. Depending on the sort of organization you have, you or your CPA will be completing out forms like 1020, 1065, 1040 Schedule C, 1096, 1099, 940 along with calculating your a sole proprietor tax. I highly recommend finding a local Certified public accountant (cpa) (CPA) that is familiar with your industry to help you determine which forms you’ll be required to file and ensuring they are submitted on time and the right authorities office.
8) Hire a support team: A legal professional can help you with your legal structure and a Certified Public Curator will help you keep your funds in order as well as keeping you up to date with local, federal and state government.
9) Make industry standard business documents and forms to include: logo, letterhead, business greeting cards, and website.
10) Advertise in your local press along with appropriate company periodicals.
According to INTERNAL REVENUE SERVICE document, FS-2008-23, below are a few of the questions that the IRS may ask when deciding if your business is engaged in for-profit activity. You will need to be ready to answer these questions and provide documentation.