TAX TIME, Tick Tock, The Tax Clock is Ticking
February 24, 2011
Time to get your business taxes ready.
For artists and makers, running your business in a manner compliant with I.R.S. rules can make a BIG DIFFERENCE between being declared a "business" instead of a "hobby". This has potentially major financial consequences.
The IRS defines a "hobby" as "an activity not engaged in for-profit" and consequently deductions for expenses are limited. On the other hand, a "business" is allowed to deduct the operating expenses from the business revenue to determine net taxable income. Read more about this issue: "Business or Hobby? Answer Has Implications for Deductions."
The I.R.S. website offers videos to help small businesses inconvenient, digestible segments. I recommend watching these videos.
Grab your tea or coffee cup!! The video series is called Small Business/Self-Employed Virtual Small Business Tax Workshop.
There are 10 Lessons. I suggest that you listen to all that apply to you.
I especially recommend that you listen to at least these four. You can pause, replay, or skip around. Start with the Introduction (it is really short.)
Everyone should listen to Lesson 4. It covers what you need to know when you run your business out of your home.
BELOW are summaries of the first four lessons:
Lesson 1. What you need to know about Federal Taxes and your new business
EIN (Employee Identification Number)
Bookkeeping and Accounting
Forms of a Business Organization
Paid Tax Preparer
Lesson 2. How to set up and run your business so paying taxes isn't a hassle.
Net Profit and Loss
Disability Access Credit
Self-Employment Tax and Estimated Tax
Lesson.3 How to file and pay your taxes using a computer.
Describe IRS e-file
Benefits of e-file
Electronic Payment Options
Lesson 4. What you need to know when you run your business out of your home.
Determine Deduction Eligibility
Types of Expenses
In my limited experience, there are a couple of issues that have been of particular interest by the I.R.S.:
Withdrawing inventory items for personal use
Accurate and detailed documentation of travel expenses
A receipt for every business expense
Detailed records for Cost of Goods Sold
Your detailed business records are absolutely essential.
This is my head exploding when I do my taxes.
This post was updated on February 5, 2022.