Starting a home-based business can be a great decision. For many, it is a source of supplemental income to go along with their regular job. For others, it may be their fulltime income. In today’s economy with unemployment still higher than it should be, the only way for some people to work at all is by owning their own business.
Home businesses have many pluses and people need to be aware of the possible complications. One of the biggest differences between a typical employee and a small business owner is taxes. If you are employed by a company, your employer withholds all your taxes, you file a return at the end of the year, and you either receive a refund or pay depending on your situation.
As a home business, there are additional tax considerations to be aware of including:
Minimum Income Filing Requirements: Many people are not aware that the IRS has income thresholds that determine whether or not you are required to file a return on their home business income. Here is a basic summary:
If you are single and under the age of 65 and your gross income is at least $9350, you must file a return. Over age 65, the figure jumps to $10,750. For married couples in either age category, the figure is double. Also, if your household has any other income source, you must file on your home business, regardless of how low your income is. One other thing; if the net income from your home business is at least $400, you are required to report it so you can pay your Medicare and Social Security taxes.
Why You Should File Regardless of Income: Even if you are under the threshold for home business income filing, in most cases it is best to file anyway. The reason is that you may qualify for tax credits that you receive even if you did not pay any taxes during the year. Examples of such credits include 1st time home buyer, child care, adoption, education, and several others.
Quarterly Taxes: Small businesses that meet a certain threshold are required to pay taxes on a quarterly basis. In general, if you anticipate owing $1000 or more in taxes, you are supposed to make quarterly payments. If you do not have an employer from which to have additional taxes withheld, you can pay them directly to the IRS using form 1040-ES (Estimated Tax for Individuals).