Taxes And The Home Business
Just because you work at home does not mean you are not subject to the same taxes as any other business venture. The difference is that because you do work at home, its much easier to hide the income than that of a brick and mortar business. On the other hand, the time will come that you will be caught if you do not operate your business on the level.
What makes it so easy is that companies are not required to provide a 1099 unless they pay you at least $650 in a year and if you are a freelancer who works for a variety of people, you may not make that amount with just one client. If no one is sending a 1099 that means you have to keep track of your own income as well as expenses.
There is a certain income level where you are required to file a quarterly tax return, so you want to make sure that you make yourself aware of that so that you do not incur a penalty for not filing it. You also have to file your state taxes as well based upon your state of residency. Other taxes that may be involved include gross receipts taxes, local taxes such as city and other municipalities and sales tax in most states.
It is advisable to enlist the services of a tax accountant or tax advisor in order to be certain that you are filing all of the tax forms that you are legally required to file.
Other taxes you may have to pay yourself as a sole business owner includes social security and medicare taxes. Although you are not required by law to pay these since you do not have employees.
If you desire to make use of these services when you retire, you will need to make the contributions yourself. That means you will need to pay both the employer and employee percentage of the taxes. You can, however, choose to simply invest in an IRA Plan. If you had a 401K or an IRA when you were working, you can take the money and roll it over so that you do not have to pay taxes on the distribution.
Since you are now self employed, if you do not open your own retirement account, you will have nothing when you are ready to retire unless your spouse has social security income into which he or she pays. You may also want to have a tax attorney on retainer in case anything should happen with your taxes and you find the IRS calling you for an audit. Businesses are more likely than individuals to be audited and its in your best interest to have an attorney with you.
Obinna Heche: Los Angeles- California
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