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If you earn a dollar online with your online business you will need to claim it. Before we go into any more depth let me tell you I am not a tax expert so very possibly what I tell you could be wrong. What this means is at tax time it is important you find someone who is knowledgeable about taxes and personally I use H&R Block there are many more like them. You will be claiming every dollar made and reporting it at the end of the year, but you will also be claiming every dollar spent on your online business. I know this may be an extremely boring aspect of online business, but if you do not want the government coming to shut you down I recommend you read this.
Now what I was told was there is no need to get a business number or employer identification number unless you have employees. There is much more specific guidelines for this at the IRS website which you can find at http://www.irs.gov/businesses/small. Remember that you will also need to look up your own states guidelines around opening and operating an online business. An online business is any presence online which is monetized meaning you earn money from the presence.
Once you have checked and done all the necessary work to ensure your online business is operating within federal and state regulations it is imperative that you keep traffic of every dollar incoming and outgoing. Usually the income is quite easy to keep track of if you are using affiliate websites. These sites should have extensive accurate records in regards to your income which they attributed to. It is also good if you keep a file on your computer of all payments received, who they were received by and when they were received. I understand this is a daunting task, but it is one you will need to keep up on if you would like online business longevity.
The second part of online business tax is all outgoing expenses. Every dollar you spend which directly supports your online business is tax exempt which means the government will not tax that money. If you earn 100$ online and spend that 100% on marketing, web hosting, buying a domain name or other related business expenses you will not have to pay tax on that 100$. Now usually you will not spend 100% of the money you generate from your online business on your online business, but the money you do spend is tax deductible. Again you should spend time on irs.gov looking through what you can and cannot claim on your taxes.
For me I am able to claim most of my internet bill and every dollar I spend online which directly supports my online business. Usually I try when possible to spend as much as possible on my online business so I don’t lose so much money during tax time. I recommend this to those who are seeing success with their online business. You can cut down how much you pay in taxes if you spend a bunch of money on your business. The easiest way to spend your online business money is on marketing or buying more years of hosting and domain name.
Again I would like to reiterate that I am not a business expert, everyone will need to look up and learn the tax rules for your area and the federal tax rules. It is highly recommended that you see a tax professional when doing taxes especially when you are new at the online business game. They can give good advice and answer the questions which you typically don’t have the answer for.