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Startup Rules
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Article 8: More Time-Management Tips
Here are a few tax basics to be aware of, but for your specific circumstance, consult your tax preparer or the IRS.
Your taxes are determined by the form of your home-based business: sole proprietorship, partnership, corporation, S corporation or limited liability company. All except partnerships file annual income tax returns. Partnerships file an information return.
General business taxes include income, self-employment and employment taxes. Income taxes are paid as you go, and in the case of sole proprietorships, usually in quarterly estimated payments.
Self-employment taxes include Social Security and Medicare taxes, primarily for those who work for themselves. This coverage provides retirement, disability and survivor benefits, and hospital insurance.
You must pay employment taxes for any employees, including Social Security, Medicare, federal income tax and unemployment taxes.
The simplest home business to start and maintain is a sole proprietorship, which is an unincorporated business owned by one individual. The owner is the business. Its liabilities are the owner’s. Business income and expenses are shown on the owner’s personal tax return in a Schedule C, or when expenses are less than $5,000 on a Schedule C-EZ.
Income taxes are paid as you go, but since home business owners no longer are employees, no one withholds their taxes. Instead, the self-employed must make estimated payments directly to the IRS each quarter. These payments can be made electronically or by submitting Form 1040-ES vouchers.
If you or your spouse receive wages from an employer, you may increase the amount withheld to cover the combined tax liability. The combined withholding and estimated payments must equal at least 100 percent of previous year’s tax, or 90 percent of the current year’s anticipated liability, whichever is less.
Prime tax deductions for home-based businesses are expenses related to the home office. Deduct expenses only if your home office is the principal place where your business is conducted, or where you deal with clients. If you use a separate structure for part of your business, you also can deduct its expenses.
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