Like any business owner, when you run an online business you have to keep good records of your earnings and expenses. Not only will the IRS want to know how much you made (and spent) during the year so your taxes can be accurately calculated, but you need to know if your business is profitable.
What is a Business Expense?Business expenses include any money you spend to operate your business, and that you would not have otherwise had to spend. Some examples of business expenses include:
· Office equipment including furniture, computers, printers, software, cell phones, and anything else you need to operate your business.
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Keeping Good RecordsRecord keeping, especially for a small business, doesn’t have to be complicated. A simple spreadsheet will do the trick if you have few expenses. You can set up your spreadsheet similar to a checking account register, and record each transaction and what it was for. Then file the actual receipt in a folder marked with the year. When it’s time to do your taxes, you’ll be able to easily calculate how much you spent and in what categories.
A better solution, and one that is still simple to maintain, is to use an accounting software such as Quickbooks. Most accountants will be happy to set up your system for you, and then it’s a simple matter of just recording each expense and selecting which category it belongs to. At the end of the year, simply email the file to your accountant and he or she will be able to prepare your taxes using that information.
How you record your expenses is not nearly as important as is simply doing it. Regardless of the system you choose, be sure to use it consistently. You’ll find it much easier to deal with taxes at the end of the year if you spend a few minutes each week recording expenses and income, than if you try to do it all at once come January.
