Oftentimes, when talking about web marketing tax, it is not a good idea to think of it in isolated terms.
One of the biggest and most potentially risky misconceptions about Online Marketing is that it is a tax free market. Individuals go into IM believing that because they are making money online and being paid through, mostly, PayPal–they don’t have to pay taxes on that money. This is not true! More importantly, failing to pay taxes on this income can land you in a lot of trouble. Don’t worry, though: doing your taxes as an online marketer doesn’t have to be difficult. Here are some things which could help you.
1. Obtain an appointment at your local Small Business Association. Every single community has some form of small business “helper” organization (often run through a community college) that’s got trained experts available to help you both getting your business starting and ensuring that all of your T’s are crossed and your I’s are dotted. What’s especially great is that this source of information is just about always cost free.
2. Keep an eye on every little thing. This is really worth repeating: keep track of every single thing. Excel makes this simple enough. Create a spreadsheet and report every last cent you make with your Internet Marketing business in addition to one that tracks every single cent you spend on your IM efforts. Make sure you keep receipts and invoices for all of the money you pay out.
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3. If you could afford it, hire an accountant. In this way you don’t have to worry about the numbers and taxes part of your business. You tell your accountant what you’ve brought in and paid out (make sure you can prove this with official proof) and they take care of everything else–especially during tax season.
4. Put money towards the taxes that you could owe at the end of the year. A basic rule here is to pay in 30% of each sale. You can do this every quarter through Estimated Tax Payments with the IRS or you could even do this month to month. The IRS currently has the capability to get estimated tax payments any time you think or want to make them. By doing this you’ll not have an eye popping number that you owe at the end of the year (which will be extremely stressful if you haven’t saved up for it). What is better is that if you have somehow overpaid through your estimated tax payments, you’ll receive a refund just like you would if you were working for a traditional employer. You’ll want to speak with someone at the IRS so that you can get this set up properly.
5. Be familiar with every one of your allowed tax deductions. When you operate your own business quite a lot of things such as your utility payments, etc are tax deductible (as is any money you spend on business equipment or supplies). Your accountant or a representative from the IRS should be able to help you figure out which deductions you can claim at tax time.
Becoming intimidated by the tax process if you are a web marketer is quite natural. Luckily, there are a lot of resources available to help you observe the law and still keep yourself from losing your shirt to the IRS!