Becoming an Entrepreneur? Ignore Uncle Sam at your peril!
As you build your “Work from Anywhere” business, it’s easy to view that extra money coming in almost as “play money,” especially if you’re doing it part-time and still earning income from your old job.
But beware! Uncle Sam doesn’t view it that way.
One of your first tasks as a self-employed person should be to set up your bookkeeping to keep track of both income and expenses. Take a little time to read the IRS regulations for Schedule C, so you know which expenses you can deduct and which you cannot. Then record them religiously.
If you’ll need to carry a credit card balance for start-up expenses for your new business, get a business card and use it ONLY for business. Otherwise, you won’t be allowed to deduct interest you’ve paid. Using a business card can help you in other ways, as well. For one thing, it establishes your business AS a business which can then begin building its own credit rating. You may not need to borrow large sums now – but who knows what kind of expansion the future may bring?
For many, one of the hardest tasks is remembering to keep a notebook in the car and record your mileage any time you drive for business. Make it a habit and just do it – otherwise you’ll be forced to miss deductions.
It would be wise to meet with your tax preparer at the outset, then follow his or her advice. Since you may owe extra income tax as a result of your added income, talk about how much to set aside each week or month. Remember that you’ll not only pay income tax to the IRS and the state (depending upon where you live), you’ll be required to pay in to Social Security and Medicare.
Whatever the percentage of income you need to set aside, put it in a separate account and don’t touch it until tax day!
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