I need to write the book on Small Business Tax Help already. The more cases I handle at the office, the more I realize that the vast majority of business owners don't have any idea how to run a business! They mess up in every way they can- and end up owing the IRS big time. Here's a few basic pointers.
Before You Start, Read Up Starting your own business can be a massive undertaking. Even if it's a side job. It's a drain on time (friends? what friends?), money (start-up hurts), and it's stressful to boot. But even if you combine all of those factors, you still don't get the amount of frustration the IRS brings to the table. The IRS makes things ridiculously hard for Small Business. Here's some things to read up on before you even consider taking the plunge:
-IRS Tax Information for Business: Straight from the source, and intimidating online handbook of rules and regulations.
-Business.gov: Find loans and grants, get business licenses and permits, register your business name, and even a discussion forum.
-Circular E: Thinking of hiring employees? Here's Circular E, the Employer's Tax Guide. Reading this entire guide in one sitting is recommended only for my most masochistic of readers.
Does all of this seem like "too much"? Run while you still can. Starting a business might not be for you.
Expect to Report Income The IRS wants you to report all income, no matter if it's your side job mowing lawns or a bigger 20 man landscaping operation. A lot of people think self-employment is their path to untaxed income. Think again.
Keep All Records We talk with dozens of people daily that don't have any files or bills. The IRS requires this information. Otherwise, how can you prove the deduction? You need to keep receipts, copies of bills, and invoices in a safe place.
Final Tip If you can afford it, hire a third party or an experienced staff accountant to handle your tax issues for you. This will free you up to do what's important, run your business.