It’s a scary fact that nine out of ten new businesses fail in their first year. But that also means that one out of those ten new businesses makes it. What sets these successful ventures apart from their less-successful counterparts? According to JP O’Brien, founder and president of http://KeepMore.net, the difference is that a successful entrepreneur treats their business as a business. This focus ensures they capitalize on tax breaks and deductions, and keep more of their hard-earned profits. If you’re not tracking your business, you’re not setting yourself up to succeed.
Legal Matters
To get your business started on the right track, the first step is incorporating, which lets you take advantage of numerous small-business tax benefits. Regardless of how you file your eBiz, your income from it is taxable. Says O’Brien, “You’re not going to get any tax breaks for filing as a hobby… By law, you have to report every dollar you’ve sold to the IRS.”
That means it’s in your best interests to structure your business as a legal entity, and capitalize on the tax breaks that doing so affords you. It’s a simple process that can save you a lot of money down the road—you can even do it online with a service like http://BizFilings.com or http://LegalZoom.com.
Getting on Track
The next step is tracking your cash flow. Advises O’Brien, “Look at any expenses in your daily life that are actually being used for business. All those things add up...and can reduce your tax implication.” Maximizing the deductions you’re permitted can amount to substantial savings:
•Home offices.
•Equipment purchases.
•Website maintenance costs.
•Business-related auto mileage. This is one of the biggest deductions business owners fail to track. But at nearly forty-five cents per mile, it pays to record your product sourcing outings, trade show trips, client visits, etc.
Watch where you’re spending and where you’re profitable, so you know what’s working and what needs work.
Playing It Safe
Lastly, you need to back up everything with documentation. With an internet business, most of your transactions occur online, so it’s important you print them out and keep good records. You should have records for four years—the current year and three years prior—just in case the IRS ever has any questions. Even if your deductions are perfectly legitimate, you need to have the receipts and paperwork to prove it, or they can still come after you for back taxes. By documenting your profits and expenses, you’re really just protecting yourself.
No matter how new or how small your online business is, it’s never too early to start treating it like a business. You want to start keeping good records from Day One. Getting legal and getting organized aren’t nearly as intimidating as they sound, and they can be the difference between success and failure.