First, please pardon me as I vent a for minute, then I'll ask my question. <Venting> Ack! I'm pretty good at making money online through internet marketing. I can make great websites that get lots of visitors and turn a decent profit. But I can't stand taxes and accounting. I don't know how much I spent this year! I don't know how to file a quarterly. I don't know what can and should be written off in taxes. I don't know what a "reasonable" amount to spend is! I don't even have a decent system for keeping track of expenses and income. Google and other affiliate companies send me checks and I stick them in the bank. I filed a quarterly once - last July. I went to a tax guy and he laughed at me - "Oh these are just quarterlies - you don't need me!" I dunno what forms I need to fill out or how much I need to send to the government. I try to look it up on the Internet and all the legal mumbo-jumbo is over my head. I have an appointment with another tax guy on April 9th. He's the guy that did my "personal" taxes last year. My income has gone up almost 100k since then. And I don't know what I owe or how much I spend on this internet thing. And it scares me. I *want* to pay the right taxes. I *want* to have a good accounting system for my little business. But I just know how to make websites - I have no buisness training whatsoever. </end of venting> <questions> 1. Can someone help me a little. In plain English, how do you keep track of expenses and income. Do you use special software like Quickbooks? A notebook? 2. If you're in the USA, tell me... in plain English.... what are my "expenses" that I can claim on my taxes. I simply make websites and upload them. Once in awhile, I print a paper product on my computer and drive to the post office (a block away) to ship it. That's about it. I work out of my home. Should 5% of my income be expenses? 20%? 40%? Examples of where I get confused: My cousin says my cell phone is an expense. I suppose I did use it a couple of times for business-related stuff. Is it really a business expense? Travel. Like I said, I've driven to the post office a bunch of times, but I don't have a log or anything like that. Postage? Software? Toner? Computer hardware? Office supplies? I suppose I use all of this stuff. But I don't have a clue how much. Next, question- How do I determine my income? Is it money earned during the month? or checks received during the month? Quarterly taxes - Are the DUE at the end of the quarter? Are they due AFTER the end of the quarter? Should I be going to a tax guy to do them for me or should I be doing them on my own? Thanks for reading this far. Of course, I have a million questions...but I've listed a few of the basics. I am afraid to go to my tax guy - He's going to ask me questions like, "How much did you spend?" "Why didn't you file quarterlies?" "What is your income?" And I don't think I'm going to have the answers. I just want to get on the right track and learn the accounting and tax end of this Internet business thing. Earning money is the easy part - I don't understand what to do AFTER they send me the checks. Thanks in advance to anyone who can provide some help.
As a business in the United States, I keep track of my expenses on a notebook and in a word document. You can claim internet costs, the software used to create the web pages, the hosting of the web pages, etc. I would suggest either consulting with an accountant or purchasing TurboTax for small businesses. I go to an accountant and it's great. They take care of both my business and individual taxes all in one go without losing lots of money, plus they know what discounts there are and anything else you may qualify for. Plus if you mess up, you're at fault with the IRS. If they mess up, they're at fault with the IRS and you don't have to pay all the fines and fees.
I create an XL document that lists every affiliate program I use, with 12 columns for the months...every time I get PayPal'ed, I immediately record it on the XL, which updates the total for the affiliate program, and the grand total at the top of the page. As for claiming - you can claim anything that is needed to do the work you do...so, if you buy a new hard drive, printer, printer paper, ink cartridge, cell phone, cable modem, etc, you can claim those things. You probably wont be getting away with other things, like constant claiming of lunch/gasoline (unless you can really justify it, which home businesses really can't without some risk...personally I wouldnt risk getting audited by being greedy). PS-- did you start an LLC? If not, you better do it right away for the tax benefits. 2008 was the last year I was a sole proprietor. The US government bastards literally took half of what I earned and I was livid....it also sucks when you're claiming zero single... Once again, look into starting an LLC as it's vital...
Should 5% of my income be expenses? 20%? 40%? Examples of where I get confused: * My cousin says my cell phone is an expense. I suppose I did use it a couple of times for business-related stuff. Is it really a business expense? * Travel. Like I said, I've driven to the post office a bunch of times, but I don't have a log or anything like that. * Postage? Software? Toner? Computer hardware? Office supplies? I suppose I use all of this stuff. But I don't have a clue how much. There is no percentage, it whatever is actual. You computer, internet connection, software, bookkeeping expense, even home office can be expenses. Pretty much anything you use to generate income. I wouldn't take a car expense unless you keep a log of each trip. Next, question- How do I determine my income? Is it money earned during the month? or checks received during the month? Gross income is whatever you take in. Net income is whatever you receive minus any expenses. Quarterly taxes - Are the DUE at the end of the quarter? Are they due AFTER the end of the quarter? Should I be going to a tax guy to do them for me or should I be doing them on my own? Estimated quarterlies due on the 15th, April, June, September, January. This can be an easy calculation since they are estimated - you pay 100% of what you paid last year, in four equal payments. The actual amount due (or to be refunded) will be determined at the end of the year. The person who did you taxes last year should have given you (4) coupons telling you what to pay, and when to pay it. If they didn't, find someone else. You can use quickbooks or you can just hire a bookkeeper. They will do as much work as you want. All you need to do is print copies of every expense and every check you receive. You really should consult with a CPA to explore different tax strategies. For instance, if you are making six figures net, you are going to pay $15,000 on 100K net just in self-employment tax. Then you have federal and state taxes. Forming a corporation that pays you a fair salary and the rest in a dividend might save you some money and give you liability protection. What you don't want to do is just blow off making your quarterlies unless you like paying hefty penalties.
Thank you! +rep to WzNetwork, MarkN26, and Mjewel! WzNetwork - Yes, I will definitely get an accountant to handle this for me. As you said, if they mess up with the IRS, it's their fault.... and if I did it myself I'd be likely to mess it up. MarkN26 - I'll make up an XL document. Do you use this for expenses too? Yes, I started an LLC last month. Mjewel - Thanks for the info on quarterlies. Nobody's ever given my 4 coupons or told me how much to pay. (2008 was the first year I've mande any siginificant money online.) I hope they do this year. I'm not trying to "blow off making quarterlies" as you say, but I just need someone to tell me who to pay, how much to send in, and where to send the tax checks. I truly appreciate the responses to my post. This is a great help - more than you know.
Great thread, everyone needs to learn how to deal with taxes and accounting. Thanks for the good tips.
You can also deduct your state taxes in your federal taxes. If you are going to claim a housing expense (home office) be very careful. You must have a set up area that is only for work stuff. There are some regulations covering that. If you have a 3000 square foot house, and you're office is 500 square feet, you can claim 1/6 of your mortgage/rent and utilities as business expense. Your internet can be claimed, but, it has to be the percentage you use it for work. I claim all browsing of the different forums I'm on as that time because I am ad vertising my company (signature) and it's worked through an audit last year (of a different business I used to run before I got bored and sold it lol). I would hire an accountant for this, they are very versed in tax law and will know what you can get away with. I also deducted a certain percentage of my laptop this year (you can deduct your computer you use for work, up to the percentage you use it specifically for work). I use several things to keep track of my income and expenses. WHMCS has something built in. I use MS Excel, I use MS Access, MS Word, and an accounting software I wrote myself. I also have a hardcopy I handwrite in (blank spreadsheet). I keep 3 copies of each, minimum.
I don't, but it would probably be a good idea to do that, too! When it comes to expenses, see if you can find one of those calendars that has a pocket on each page (usually your local bank gives them away for free). I just put all of my receipts in there. It makes things a lot easier instead of throwing them all into a shoebox. This is all a lot easier if you have a business card - everything you charge on that card should be claimed (hopefully none of it was personal expenses)
host is right about being careful about how you deduct things for a home business. Furthermore, some items (like cell phones, computers, peripherals) are not business expenses (they are capital expenses and are deducted completely differently than a business expense). This site has some info and good links: Click
Fireboat, You have gotten some good advice here, and some not so good advice. If you made $100,000 last year you need to pay some people to help you out. Find the right people and it will save you money in the long run. You need a bookkeeper to track your income and expenses and you need a good tax person who has experience with business. Then, you need to get a basic bookkeeping and tax education, so you at least have an idea of what is going on. f you can get your tax person to give you some training that would be great, but it isn't going to happen until after April 15. I would suggest signing up for a basic bookkeeping class at the local college or adult ed center. With the education you will have enough of an idea of how it all works so that you can keep an eye on your bookkeeper and tax person and make sure they are looking out for your best interests. Then you can spend your time focusing on what you do best and let other people take care of all the paperwork. I speak from experience because I have been doing taxes and accounting for small businesses for 20 years. If you are interested in knowing more you can pm me.
Thanks for the advice, everyone. Here's an update: I met with a tax person/accountant. My taxes are done - thank god! And it took two and a half hours of sitting in those hard chairs, talking about numbers. My head hurt by the time it was over. I owed some money to New York State and to the IRS, but it wasn't as much as I had suspected. Evidently the quarterly payment I made last June helped out a lot. The tax guy was very helpful in telling me what to deduct and what not to deduct. I did get to write off my home office - we calculated the percentage of square feet in my house. He also gave me four "coupons" to send in quarterly paymentws for 2009. He calculated the amounts based on my 2008 income. All I have to do it write checks and mail them to Federal and State governments four times this year. I now have a plan for tracking expenses and income using Excel. I also have a place to organize and keep receipts. KMP -- Good advice about the bookkeeping course. I think I may do that. Thanks to everyone for their help.