Part of the preparation for the new year, of course is to close out the old year first. Especially for tax purposes you should be as organized as you can about everything. Even though taxes are not due until April the year actually ends December 31 and begins anew January 1. Don’t get caught off-guard with the April 15 deadline looming and then start scrambling around to find things.
Particularly since we are talking about possible tax deductions that you can claim for your business expenses, that might make it seem a little bit more palatable to keep track of your expenditures as well as your income. You absolutely want to be able to document every penny you claim in case of an audit. They may be rare but they are always possible when you are self-employed and it will take you many years to live it down if you fail an audit.
It really helps to print out the previous year’s monthly bank statements and highlight any business expenses incurred, as well as payment processors such as Paypal.com and other places where your expenses are documented. Don’t have the denial attitude that you probably will never get audited and you will worry about it when and if it ever happens. You don’t have any idea when it will happen if it ever does and that is a real good reason you always want to be prepared.
You are responsible to keep your financial records for 7-years and you may as well have a folder for your taxes that can be prepared as part of filing your taxes each year. When you have your own business it really may be best to have your taxes done professionally as there are many forms that you need to fill out so that you get for example deductions for use of your home for business. You don’t want to miss anything in this regard just as you don’t want to miss reporting income that may come back to bite you someday.
Keep all paper receipts or printouts when you make purchases of equipment or office supplies, monthly affiliate program membership dues. and invoices for technical support, etc. These are all deductible for a business. It is actually a good idea to have a folder for tax receipts that you keep all year long and just drop things in it as they come in.
A lot of people don’t seem to know that you can file taxes for your business and claim deductions even if you have not made a profit yet. You can do this for a few years but then if you don’t make any money they will deem your business a ‘hobby’ and you won’t be able to deduct expenses anymore. (so one more reason to try as hard as you can to generate a profit with your business!)
p.s. be sure to check the IRS website for any changes or forms each year as well as your state’s tax website. Be sure your tax preparer is familiar with self-employment taxes.
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