In Home Business Expense Records
Setting Up Home Business Expense and Income Records
If you’ll be taking on all the tasks associated with owning and running a home business, you will need to keep systems as streamlined as possible. A little bit of effort now in organizing your expense and income records will save you days and days of frustration later. In addition to saving you tons of extra work and frustration at tax time, keeping your income and expenses relatively up-to-date will give you an always-current picture of how much money you have brought in and how much money is going out.
Before you begin, review the budgeting so that you are familiar with the type of home business expenses you will need to track. The easiest way to set up income and expenses is to base the categories within your records on those in Schedule C of your federal tax return. To obtain the most current Schedule C, go to irs.gov and download the most recent form. Print it, and read through the directions.
Recording Home Based Business Expenses
The percentage of home expenses will depend on how much of your home you actually use as your home office. Let’s say that you have a 1,000 square foot home, and of that, 250 square feet is used as your home office. Therefore, you use 25% of your home for a home office. That means 25% of your utilities and rent/mortgage will be deductible as a business expense.
If you plan to sell your home shortly, discuss the home expense deduction with your accountant or tax preparer. When the home is sold, you might have to repay some of this amount. At the end of the categories, you should have two numbers off to the side. One is labeled “Total Expenses,” and it will add up all the expense columns - simply create a formula that adds up all the expense column totals, not including the working number columns for entertainment and household home business expenses. This supplies you with the total amount you have spent to date this year. The other number is labeled, “Net Income This Year.” This is the result of taking the total of all “Income” columns and subtracting the “Total Expenses” number.
This number is the amount you have actually earned after deducting business expenses. Much of this spreadsheet is tax related; however, don’t forget to also keep track of other, tax-related information, including home mortgage interest, charitable deductions, and IRA contributions.
Watch tomorrow as we show you how to track your home based business invoices and record your work at home income.
Tags: home business expenses, home business income, work at home, work from home