Hello monroe1900,
Thanks for joining us today!! Congratulations on the new business!!
Starting a business and being self-employed is wonderful! There are a lot of things to consider. First and foremost, is to keep good records. Keep records of income (cash, check, 1099) and all expenses. I'll give you an idea of what counts for expenses and what receipts and information you should save. No fancy software is needed, an excel spreadsheet is great or good old pencil and paper. Keep a file folder for paper receipts. You can also use scanning software to store your receipts. If you would like a software solution, take a look at our QuickBooks line of products.
Being self-employed is different from being an employee in many ways. The biggest difference is that the self-employed pay self-employment taxes. W2 employees have withholdings in their paychecks. Self-employed people should make quarterly estimated tax payments based on their projected profit.
Starting a new business is a lot of work at first but with some organization skills, it will become much easier.
You will still fill out a 1040 Federal Tax form jointly. Your spouse will fill out a Schedule C for her new business. The business income and expenses will go on the Schedule C. A Schedule SE (self-employment taxes) will auto calculate assuming there is a profit on the business.
Some expenses to keep track of:
- Assuming your spouse will have a home office, one room that is specifically used for her business, there may be a deduction for office in home. This would be done on Form 8829 and will auto generate in TurboTax when you answer the questions in the Business Use of Home section under the Schedule C. Please don't get overwhelmed or confused. TurboTax does a great job of stepping you through setting up the business. Some things to keep track of: receipts for utilities, home owners insurance or renters insurance, mortgage interest, real estate taxes, etc. A portion of these expenses could be deductible as an office in home deduction. You will also need to measure the square footage of the office and the square footage of the entire home. This will determine the % of the deduction.
- Expenses for a desk, office chair, computer, printer, pens, paper, general office supplies used in the business.
- Keep a written log of any business mileage driven. Miles to and from a business meeting site, to a client's home, etc. The IRS requires a written log. There are several Apps for the phone that are great for tracking mileage too.
- Anything else related to the business
Estimated tax payments should be done quarterly for federal, state and local (if your state has local tax). You would calculate these estimates based on your business net profit during each quarter. If there is a loss, no estimated payment is required.
This is some information to get you started. I'm going to include some really great links to some articles that will assist you. It's great that you are thinking ahead for your new tax situation. Remember, we are here during tax season to assist you with any additional questions you may have.
https://turbotax.intuit.com/tax-tips/small-business-taxes/starting-a-business/L7PBcAdVh
https://turbotax.intuit.com/tax-tips/small-business-taxes/starting-a-new-startup-business/L8VrV4KZb
https://turbotax.intuit.com/tax-tips/small-business-taxes/startup-business-tax-tips/L7SOyYMzr
https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...
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