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TAXES AND THE HOME-BASED BUSINESS The information provided is for general purposes only. Many home-based business owners fail to operate their businesses as viable separate entities. A home-based business should be addressed with the same level of professionalism and authenticity as any other business. The business should have its own designated space that is devoted solely to that business, including a separate phone line and mailing address. Many home-based business owners fail to comply with all the federal, state and city reporting requirements because they are unaware that the regulations exist. Registering your business with the city, state and federal agencies will help to ensure that you are notified of the required filings. Proper recordkeeping is vital to the home-based business. Your local state tax and IRS offices offer free (or bargain) workshops and/or assistance to businesses and individuals. If you need assistance in completing or understanding forms these offices are here to help you. Use them. The telephone number for the IRS is 501-324-5685 or 1-800-829-1040. The IRS offers free tax preparation assistance from January to April 15th of each year at various locations throughout the state with the VITA (Volunteer Income Tax Assistance) program. These volunteers can assist you in completing your businesses newly required tax forms. As a home-based business if you do not pay wages to yourself in the form of W-2 wages subject to withholding, but instead draw from the profits of the business. Keep in mind that you are still required to pay income taxes on those earnings as they are earned over the course of the year through the use of quarterly Forms ES, Estimated Tax for Individuals. You could be penalized at year end if you owe more than $500 in taxes. Take advantage of the deductions available to you as a small or home-based business. A taxpayer's principal place of business can qualify as a tax deduction based upon the relative importance of the functions performed at the location and the amount of time spent at the business location. Other deductions can include the use of personal automobiles, furniture and equipment, portions of the mortgage or rent payments and portions of the electric, gas, phone, cable and water bills. The IRS makes numerous publications available to the taxpayer at no cost to aid in understanding tax deductions and regulations. Some of these include "Publication 334:Tax Guide for Small Businesses", Publication 505: Tax Withholding and Estimated Tax, and Publication 583:Taxpayers Starting A Business. Guides are available on practically every subject. In Arkansas you may contact the IRS at 1-800-829-3676 to request publications. Consult your CPA or local tax authorities for specific recommendations appropriate to your individual situation.
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