Look Like A Business
by Kay Green,
www.MyPreciousKid.com
Copyright 2003
When beginning a home business it is very important that it look like a business not a hobby. IRS allows deductions for expenses for a business but not for a hobby. IRS allows deductions for expenses for a business as long as you make a profit 3 of the first 5 years.
To look like a business you need the following:
1. A
separate business checking account. All income needs to be deposited into that account with a note in the register what the income came from (and a matching invoice for that income). All expenses need to come out of this checking account (or a separate business credit card) using notes in the register explaining all expenses. IRS wants to see a clear separation of household money and business money. Take personal draws from this account when you have acquired profits.
2. A separate credit card that is just used for business. Use the business checking account to pay this bill as well.
3. A merchant account so you can accept credit cards for sales. Merchant Accounts accept Visa and Master Card with additional fees for Discover and American Express. Setting up a business account with Paypal is also advisable. Studies have shown that customers will spend 36% more using a credit card than cash.
4. Business Cards to give to potential customers and contacts.
5. Advertising online and offline. Advertising for clients shows IRS you are a business working to make a profit.
6. Bookkeeping records pulling in all income and expenses from your business checking account, business credit card and cash (I hope you never pay cash for business expenses). QuickBooks, Quicken, and Microsoft Money all work well for small home businesses. If you have multiple products I suggest QuickBooks for better record keeping. Monthly receipts and invoices to back up all expenses and income.
7. A mileage log of every where you go and every mile that is connected to business and every mile that is connected to volunteer activities.
8. I suggest reading the book
Tax Savvy for the Small Business and Tax Savvy Guide. They are very valuable in telling you what can be deducted in your business.
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