How This Information Applies to You
It may be easy to ignore this information—thinking it doesn't apply to you—particularly the sales tax issue. You might be right, and it doesn't apply at all to you. However, you might just as easily be completely wrong. Can you afford to take that chance? Never starting your online business in the first place would be a shame. Having a thriving, profitable enterprise shut down, and you possibly facing fines and jail time would be tragic!
So, do your due diligence and ensure you are operating legally with tegard to tax reporting.
Going Forward: Conducting Your WA Business
It is still early in the current year. Prepare now for next tax season by getting your income and expenses under control now! Hire a tax accountant or someone familiar with tax matters to guide you. To help keep track of income and expenses, consider using one of today’s tax preparation software packages, such as FreshBooks or QuickBooks. There are others to choose from, as well.
Every business-related expense that you incur in running your WA (or any other business) is tax deductible, but some have limits. To report business income on your federal return, you must file IRS Tax Form Schedule C. (unless you are an LLC company). It might be a good idea to go to the IRS website and copy the instructions for Schedule C. Find out what expenses are deductible (the instructions will have all of the details). However, accurate recordkeeping of all expenses is essential, so you can prove your deductions. Your net income—if operating as a sole proprietor—will be taxed as ordinary income. If you have a loss, it will be deducted from your income (this is not an unusual situation during the first year of many businesses.).
Here are some of the basic expenses you may have in your business:
- Web services (WA Fee)
- Internet cost (Wireless monthly fee)
- Buying new equipment for the business such as:
- Computer
- Printer
- Ink
- Paper
- Software
- Security software
- External Hard Drive
4. Domain fees
5. Domain Renewal fees
This is not a complete list. Depending on the particular makeup of your business, you may have other expenses not covered here. See your tax professional for guidance in this area.
Next Up:Last Things
Reply
"The general rule is that if you have not turned a profit in at least three of the prior five years, the IRS will categorize your business as a hobby. This may be extended to a profit in two of the prior seven years in the specific case of horse training, breeding or racing."
Also, how long ago was that? You are able to file an amended return for up to three years after the due date of the original return (File IRS Form 1040X).
Finally, your WA business has nothing to do with those other businesses. You are legitimately operating an internet business to make a profit. Thus, you can, and should, treat it as such. If your CPAs are telling you that you cannot claim expenses for your WA business, I'd look for another CPA.
Anyway, wish you continued success,
Joshua
