Tax Consequences for a Home Business
A Home Business Article Contributed by Phyllis Petito Corella
Tax Consequences for a Home Business
Are you thinking about running a home business and are wondering what the tax consequences are? Well, you will have to pay federal income tax, Federal Insurance Contributions Act (FICA), state income tax. If your business is required to collect state tax on goods purchased then you have to report and pay this tax also. But before you pay taxes you have to set up your home business and get licensing if required by your state and get any other forms that you may need.
You should check with your state department of employment. They will guide you and help in any way they can. They want to see your home business succeed. It is like job security for them. Once you are registered with the federal government they will send you an official letter with your tax ID number. You will need this to open a business bank account and you must have a business bank account to run your business. You want to keep your business and home finances apart.
Yu should also seek the advise of an accountant.
Federal Income Taxes for the Home Business
Everyone has to pay federal income taxes on wages earned. Whether or not your home business is incorporated you will have to file quarterly and pay and file monthly. The filing period ends on the last day of March, June, September and December. The Internal Revenue Service (IRS) will send you the necessary forms and they will give you explicit instructions on how to fill these forms out.
As the owner of the home business it is your responsibility to see that the forms are filled out and the money deposited before the due date. You can do this over the internet. It is easy to set up and once again, the IRS will send you all necessary instructions. Don't be late because they will penalize you. There is also FICA that you will have to pay. Since you are self-employeed you will have slightly higher FICA payments then you had when someone else employed you.
Your accountant can help you with this.
State Taxes for the Home Business
Just as you have to pay federal income taxes on your home business you have to pay state income tax. You have to pay and report monthly and then file a quarterly report due on the same dates that your federal report is due. Again, if you are late they will penalize you. If you must collect sales tax and you have no sales tax to pay or report for a specific period check with your state and make sure of the requirements.
If they require a report even if you have to claim zero dollars, make sure you report it. In New York State if you do not send the report in for a zero amount they penalize you $50. The good news about all these taxes is that you can deduct all your business expenses, so the tax outlook is not as bleak as it looks.
