Incorporate Online Business Incorporation
Small Business Tax Advice LLC?
Yesterday I officially incorporated my home/online based business as a LLC. I’m now realizing that I have many questions as to how to maximize my tax write offs for the upcoming year. I need to know if I should continue to purchase business start up costs using my personal checking account, or should I wait until I open my business account once I get all my incorporation papers? I also have many questions as to what exactly I can write off, how much I’ll get back, and how long it will take to get the money back. I have questions about rent, 1099 forms, etc. I realize that at some point I’m going to have to hire a local tax professional, I’m just hoping to find someone here who is willing to answer my questions and continue further communications.
If there’s anyone out there who’s willing to help, or at least answer the few questions I posted above, it would be greatly appreciated. Thanks for looking!
That’s a lot of questions jammed into one! I’ll do my best…
1. Wait until you open a business account for as many expenses as possible. While this isn’t necessary for tax reasons, it’ll be a lot easier for an accountant or bookkeeper later to track your business expenses so you can deduct them for the business later.
As an additional note- do not write yourself checks if you can help it out of this account. I have a client who was just audited for the last 3 years because he did this. The IRS looked at those checks going into his personal account and called it income- again. Transfers are best.
2. As to what you can write off, etc. etc. It sounds like you’re confused about how taxes work for the business- if you hadn’t incorporated, you’d have a schedule C. Now that the company is an LLC, it has to file a separate tax return. It doesn’t have to pay taxes, but it has to file for informational purposes. So, essentially, the vast majority of your business expenses are written off for the business- not on your personal return. Those expenses then reduce the company’s income, so less “flows through” to you on your K-1. The business can deduct start-up costs (up to $5,000- after that, you must amortize them), bank charges, interest, rent, utilities, telephone, automobile expenses, wages paid to employees, employee benefits, payroll taxes, and on and on and on. The question is more about what the business can’t deduct. If you have specific quesitons, it gets easier.
3. Rent is going to get tricky if, as the case seems to be, your company is based in your home. It’s easiest to forget rent for the company and instead file a form 8829 with your personal return (business use of home). On there, you can claim your rent and homeowners insurance, etc, then you determine what percent of the square-footage of your home is used for the business, and so on- the form explains it fairly clearly.
4. If you hire contractors, you will need to issue 1099s. One of the best things you can do for yourself if you don’t intend to hire a CPA for more than taxes, is to purchase Quickbooks. Do all of your bookkeeping with the program. Your accountant, when you go to see them for help/advice/taxes for the business, can actually take a copy of the company file and use it to help you and to file your taxes. The program can also print 1099s for you very simply. Look up a local CPA firm, find a CPA you like, and talk to them about your needs. At our firm, for instance, we have one of the bookkeepers on staff go out to new businesses or new clients or people having trouble and install Quickbooks and help the client learn to use it. Then we don’t see the client until tax time, when they bring in their file. For other clients, we do all of their bookkeeping for them- including filling out W-2s or 1099s as needed. Most firms are very ammenable to specific needs- if you don’t need a lot of help, then they can just help you out when you have a specific question or have a specific need- like taxes.
Whew! Is it completely obvious that I’m avoiding my own clients’ taxes? Not much of an escape- answering other, non-client tax questions. I need a vacation. :0)
Hope that helps!
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