Opening a business and wondering what types of expenses I can write off?
I am opening an online business for website design. (set up as a LLC, I’m the sole owner) Should I start keeping receipts of all business related expenses? Or would my business qualify as a hobby if I don’t make a certain amount of money in the year that I’m filing.
What types of things can I write off onto my business? (dinners, gasoline, etc.) Do I need a seperate business credit card/bank account for the expenses?
Do I have to accept payments towards the business’s services through a corporate account, or can they make the check/payment directly to me?
June 23rd, 2010 at 5:10 am
Best thing to do is to hire an accountant that knows alot in the subject of opening a business. They have all the info you need to start up your business properly. Another thing is to invest in quickbooks; with very little effort you will be able to handle all of your record keeping tasks.
June 23rd, 2010 at 5:59 am
Any expense that is directly related to running your business may be written off. If you have a home office, you can write off part of the cost of your mortgage/rent and utilities, IF you meet the requirements of having a separate area ONLY for work. If you choose to try this, I would suggest hiring a professional tax accountant. They can tell you exactly what you need to set up and document to avoid tax problems later. Even with a professional, don’t be surprised if you get a notice for an audit. A good tax accountant will go with you to explain that it is a legitimate deduction.
Gas costs can be written off only if you are doing an errand or meeting a client for the business. You will have to keep a log of mileage for this. Dinners would only be written off if it is a business dinner. Since you have set the business up as an LLC, payments would have to be made to the company, and you would pay yourself like an employee (salary, commission, bonus, etc.) You would need a separate bank account, but a business credit card is not a necessity. You can buy supplies and other items yourself and have the business reimburse you the cost.
June 23rd, 2010 at 6:23 am
You need to keep accurate records when running a business. This will be your best defense if you ever get audited.
For IRS purposes, you need to make a profit every 3 out of 5 years to have the IRS prove that you are not running a business. Otherwise, it is up to you to prove that you are running a business and not doing a hobby. You can prove that you are running a business by keeping your business accounts and personal accounts separate.
You can write off any legitimate business expense including dinners with clients, car expenses, equipment, etc.
Having a separate checking account and credit card is a good idea. However, it isn’t necessary. You can comingle your business and personal expenses using your personal accounts. But, if you do this, then it will be harder for you to prove that you are running a business.
For your revenues, you don’t need a corporate account to make you deposits. You just need to make the deposits in your separate account that you use for business.
You can read Publication 334 for more information.
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