Tax Tips for Starting a Side Business
No matter how much money you earn, there is always more to make! Most people, whether they work a full or part-time career will get a second part-time job, to earn extra income, but according to the Bureau of Labor Statistics, the unemployment rate was unchanged at 5.3%. Those who have been struggling to find additional work sometimes go into work for themselves, starting a side-business.
What is a ‘Side Business’?
If you are earning income from selling products and/or providing services, then you are operating a side business. The most common mistake people make when they decide to run a side business, is that they do not treat it like a legitimate business. One might view the income they generate from it as ‘extra money’ that they appear to be getting tax-free or ‘under the table’ as it is commonly referred to. The bottom line is, if you are earning money in the United States, it must be reported to the Internal Revenue Service (IRS). If not, serious consequences will apply that might stifle your financial situation and put you at odds with the IRS.
How Do I Report Income Earned from a Side Business?
Reporting pre-taxed income generated from a side business is not as intimidating as it seems. It only requires organization. If you are motivated enough to be an entrepreneur, then certain expectations and responsibilities come along with it. One of them is making sure that the business finances are in order. If you follow these three tax tips, by the time April comes around, you will be fully prepared to report your additional earnings.
5 Tax Tips for Entrepreneurs
- Obtain a business tax I.D. number – Any business, big or small providing services and especially selling products, should have a Tax I.D. Number. This can be obtained online or at your city building. If you don’t have Tax I.D., the IRS may accept your social security number depending the type of side business you have.
- Open a business bank account – To prevent finances from getting complicated, it is recommended to keep your business income separate from personal income. Personal income is referred to as money received from a business that is employing you. Depending on how much income earned from your side business, it may be beneficial to just open an additional savings account. Some banks require business checking account holders to keep a minimum balance, whereas, if one already has a personal checking account, opening an additional savings may not cost anything. At any rate, by keeping your business finances separate from the personal, it will be easier to report exactly how much income your side business earned.
- 3. Keep a record of your income
It doesn’t matter if your side business is gaining money or losing it. There needs to be a paper trail that records every money transaction. It isn’t enough to know how much comes in or goes out. When dealing with money, it is important to know where the money went, to whom, and why. This way, you will be able to answer any questions that the IRS may have, if any.
These are just some of the suggestions toward making your tax season a little easier as a business owner. Avoid the hassle and frustration of sorting of paperwork and tracking invoices at the last minute. Learn more about how to better prepare your side business for tax season. If you are interested in receiving more entrepreneurial tax tips, contact us online or call 1-877-825-1179.