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    5 Replies Latest reply on Jul 2, 2009 10:20 AM by bm911tax

    Taxes for Home Based Business

    gmonkey Wayfarer
      We have recently just begun selling a product from our home. How does this affect our tax situation??? What are the implications of starting a home based business?
        • Re: Taxes for Home Based Business
          SCORE86 Newbie
          The answer to this question can be quite involved. If you are operating as a sole proprietor, income tax may be due on any profits you make. The income will be reported on Schedule C of your return. If it, and other income earned, are above a certain threshold depending on your tax status (single, married, dependents, etc.), taxes will be payable. On the other hand, however, operating losses from Schedule C may be used to offset other income if available. The rules for a corporate form of business are varied, but, in general, the income for most legal forms used by small businesses is reported on Schedule C. Another complication, if profits are sufficient, is the requirement to pay "estimated taxes" quarterly. The best place to go for information re income taxes is the IRS web site at They have several self-help publications and guidelines to help the small business person in this area. Two important considerations here are the need to maintain excellent records of all income and expense items and pay all taxes when due. This includes estimated income tax payments, withholding taxes if you have employees, and sales taxes if required in your state. If you are not comfortable with all the rules and regulations, find an accountant or other qualified person to assist you. And, ask for their assistance in establishing an effective record keeping system to handle these issues.
          • Re: Taxes for Home Based Business
            SCORE 31 Newbie
            If a business fails to show a profit within a three year period it is
            considered a hobby and you cannot claim any business expenses on your
            tax return. A home based business has allowable deductions such as a
            percentage of your mortgage, taxes, insurance, utilities, etc. plus
            depreciation on the value of your home. This is done as follows: you
            must have one or more rooms devoted specifically for your business use
            and you calculate the percentage of square footage they are of the
            entire house. Let's say for example that it's 20 percent. You then take
            20% of all the above expenses to claim as a deduction in your tax
            return. However, "what the government giveth the government taketh
            away" applies here. If, in the future, you decide to stop the business.
            sell your house then you must pay tax on the profit you made and that
            tax will be the same percentage you claimed as a business expense in
            prior years; 20 percent in this case.
            Another thing to consider is that your business may have to be handicap
            accessible. Check with your County Clerk's office on that. It is
            required in New York and I don't know if it's a national law or local
            • Re: Taxes for Home Based Business
              adam2012 Newbie
              It really depends on how your business is set up. Are you a Sole Proprieter or Incorp?

              If it's a S.P, then you don't need an Tax Id number, you will just use
              your ss# and all the money you recieve will be counted as your personal
              income. I would suggest setting aside 30% for taxes. When you do your
              taxes, it will tell you how much you owe.

              If you can't find anything on the IRS website, you can also talk to
              either a lawyer or an accountant for help. You may also want to check
              out websites for small businesses or your local Chamber of Commerce....
              Good luck to you.

              Good luck to you. I'm trying to get my fiance to open his own pool and spa company too.

              Oh.. also, go to your local City Hall. You will have to get a biz
              license from them also. They may also have you get one for the cities
              you will provide service for.
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