A:  You are allowed to deduct expenses against your business income as long as they are ordinary and necessary for your business.  This basically means that if it’s a common expense for your type of business and it’s necessary in order for you to run the business, it’s probably deductible.

If in doubt, write it down, and let your accountant decide if it’s deductible.

Here is a list of the most common deductions that online business owners typically will have:

* Inventory
* eBay fees
* PayPal fees or shopping cart fees
* Shipping fees and supplies
* Postage
* Office supplies – pen, paper, toner, folders, etc.
* Advertising – Google Adwords, ezine ads, website
* Mileage – use your car for business purposes
* Phone – cell phone or second line
* Bank charges – business checking account
* Accounting and legal fees
* Computer and software
* Internet, website and faxing services
* Contract labor – VA, coaches, web designer
* Furniture and office equipment
* Membership fees – Mom Masterminds, Client Abundancing Coaching Cafe, Jimmy Brown’s List and Traffic, etc.
* Continuing education – ebay classes, accounting classes, marketing classes
* Home office expenses – will discuss in detail later

This list is not all inclusive, there are a lot more expenses you could incur, but these are the most common deductions that online and home based business owners will have.

=> Free report – Top 5 Tax Saving Tips for eBiz Owners

Are you paying too much tax on your online income?  Are you getting all the deductions and credits you are entitled to?  Do you want to learn how to minimize your taxes and keep more of your profits?  Get all your online biz tax questions answered in this exclusive audio and report just for online business owners.

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• What’s the Best Way to Keep Track of My Income and Expenses?
• Do I Need to Make Estimated Tax Payments?

A:  Yes, you should keep statements or receipts for all of your expenses.  If you ever get audited and you don’t have written proof, the IRS will likely disallow that deduction.  Plus, you’re less likely to miss a deduction if you keep good records of it.

You should  only deduct the business use of certain expenses, such as internet, computer expenses, etc.

For example, if you have internet access, and you have a family of four using that internet, then you can’t deduct 100% of the internet. 

You should use your best judgement to determine the business percentage.  If you’re not sure keep a log of who uses the internet and for how long to get an idea of how much time is spent on the internet for business vs personal use.

Do this exercise for all expenses that are part personal and part business.

A quick note about deducting your phone…  You can NOT deduct your primary land line.  You can deduct a second line, or a cell phone, but not your primary home phone.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners.

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A:  Everybody is different, so it’s really what works best for you. 

Most of the small businesses I work with prefer to use a software program such as QuickBooks or Quicken Home & Business.  But I have other clients who prefer to use spreadsheets.

If you’re not a numbers person, and you won’t keep up with or don’t understand how to keep track of your expenses, you may need to hire a bookkeeper. 

The most important thing is that you keep good records so that you get all of the deductions you are entitled to at tax time, and so you know where your business stands financially at all times.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners.

Related Posts:

• List of Tax Deductions for Online Biz Owners
• Can I Deduct Internet and Phone Expenses?
• Do I Need to Make Estimated Tax Payments?

A:  The federal income tax system is a pay-as-you-go tax system.  That means you pay taxes as you earn income throughout the year.  If you are an employee of a company, you do this through withholding.  If you are self employed, you do this through estimated tax payments.

The general rule is that you must make estimated tax payments if you expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and tax credits, then you may need to make estimated tax payments.

Also if you haven’t paid in at least…

*  90% of the tax due on your current year tax return, or
*  100% of the tax due on last year’s tax return

then you may need to make estimated tax payments.

Generally, you will estimate your tax liability for the entire year and divide that amount by four to determine your quarterly estimated tax payments.  IRS has calculators on their website to help with this. 
The due dates for estimated tax payments are:
April 15
June 15
September 15
January 15 the next year

Use Form 1040-ES to make estimated tax payments.  Your accountant should calculate and prepare coupons for you every year.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners. 

Related Posts:

• List of Tax Deductions for Online Biz Owners
• Can I Deduct Internet and Phone Expenses?
• What’s the Best Way to Keep Track of My Income and Expenses?