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Top 10 Tax Questions Home Business USA
Internal Revenue Service
1. I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won't be affected?
If you qualify to deduct expenses for the business use of your home, you can claim depreciation for the part of your home that is a home office. Generally, the part of your home that is a home office is depreciated over a recovery period of 39 years using the straight line method of depreciation and a mid-month convention. If you do not claim depreciation on that part of your home that is a home office, you are still required to reduce the basis of your home for the allowable depreciation of that part of your home that is a home office when reporting the sale of your home. 2. Does a small company need a tax ID number?
A sole proprietor who does not have any employees and who does not file any excise or pension plan tax returns is the only business person who does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number. 3. Under what circumstances am I required to change my employer identification number (EIN)?
If you already have an EIN, and the organization or ownership of your business changes, you may need to apply for a new number. Some of the circumstances under which a new number is required are as follows:
• An existing business is purchased or inherited by an individual who will operate it as a sole proprietorship,
• A sole proprietorship changes to a corporation or a partnership,
• A partnership changes to a corporation or a sole proprietorship,
• A corporation changes to a partnership or a sole proprietorship, or
• An individual owner dies, and the estate takes over the business.
Note: this list is not all inclusive. Please refer to the website under Business, then Employer ID Numbers. 4. Do businesses have to obtain the taxpayer identification number (TIN) from vendors and keep it somewhere on file?
In general, businesses are required to obtain the TIN from vendors if they are required to file any return, document or other statement that calls for the taxpayer identification numbers (TINs) of other taxpayers. 5. How do you distinguish between a business and a hobby?
Since hobby expenses are deductible only to the extent of hobby income, it is important to distinguish hobby expenses from expenses incurred in an activity engaged in for profit. In making this distinction, all facts and circumstances with respect to the activity are taken into account and no one factor alone is decisive. Among the factors which should normally be taken into account are the following:
1. Whether you carry on the activity in a businesslike manner
2. Whether the time and effort you put into the activity indicate you intend to make it profitable
3. Whether you depend on income from the activity for your livelihood
4. Whether your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business)
5. Whether you change your methods of operation in an attempt to improve profitability
6. Whether you, or your advisors, have the knowledge needed to carry on the activity as a successful business
7. Whether you were successful in making a profit in similar activities in the past
8. Whether the activity makes a profit in some years, and how much profit it makes
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity 6. I use my home for business. Can I deduct the expenses?
To deduct expenses related to the business use of part of your home, you must meet specific requirements. Even then, your deduction may be limited.
Your use of the business part of your home must be:
• Exclusive (see *exceptions below),
• Regular,
• For your trade or business, AND
The business part of your home must be one of the following:
• Your principal place of business,
• A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or
• A separate structure (not attached to your home) you use in connection with your trade or business.
Additional tests for employee use. If you are an employee and you use a part of your home for business, you may qualify for a deduction. You must meet the tests discussed above plus:
• Your business use must be for the convenience of your employer, and
• You do not rent any part of your home to your employer and use the rented portion to perform services as an employee.
Whether the business use of your home is for your employers convenience depends on all the facts and circumstances. However, business use is not considered to be for your employers convenience merely because it is appropriate and helpful.
You do not have to meet the exclusive use test if you satisfy the rules that apply in either of the following circumstances.
• You use part of your home for the storage of inventory or product samples.
• You use part of your home as a day-care facility. 7. I am starting a small business. What assistance can IRS give me?
If you are starting or already have a small business and need information on taxes, recordkeeping, accounting practices, completing Federal business and employment tax returns, and meeting other Federal tax obligations, there is help available. Much of the assistance is free. The service is called Small Business Tax Education Program, or STEP. Go to Around the Nation for seminars in your area or check out Tax Info For Business on the IRS web site.
8. How do I find out about whether or not my business needs to collect sales tax?
Your question is a state tax question. Your state revenue department should provide information regarding sales tax to you. To access the state you need to direct your question to, please go visit the state's link page on www.irs.gov 9. I just started a small business and want to know if I have to file my income taxes quarterly or at the end of the year?
The Federal Income Tax return is filed annually. As a self-employed individual, if after deducting withholding and credits you expect to owe more than the amount allowed by law at the end of the year, you should make estimated tax payments on a quarterly basis.
When you file the income tax return at the end of the year, you include the income from the business on the return. The forms to be filed are Form 1040 U.S. Individual Income Tax Return, Form 1040, Schedule C, Profit or Loss from Business, and Form 1040, Schedule SE/ Self-Employment Tax. If estimated tax payments were made during the year, they will be claimed on the individual income tax return as payments. 10. Where can I find more information?
Visit the IRS Small Business and Self Employed One Stop Resource
http://www.irs.gov/businesses/small/index.html?cm_sp=ExternalLink-_-Federal-_-Treasury
WANT TO USE THIS REPORT IN YOUR E-NEWSLETTER OR WEB SITE? You can, as long as you include this complete blurb with it: This article was published on www.irs.gov and on www.homebizchicks.com by Sue Papadoulis who also produces the popular e-newsletter Smart Biz Chicks. If you're ready to jump-start your home business to make more money and have more fun and free time, get your FREE tips now at www.homebizchicks.com
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Chief Chick Sue Papadoulis is committed to empowering women who work from home with the means and know-how to live a life of abundance. Sue educates and advises work-from-home women, and those who dream of working from home. A wife, mother and the owner of two successful home-based businesses, Sue is uniquely positioned to help others.
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