Steady losses and working from a home office tend to get the attention of the IRS.

It’s that time of year again—tax time.  No matter the size of your Amazon Marketplace business, you will need to file taxes either independently for your business or included in your personal filing.  If you are filing for your business separately, here are our top four tips to help you be prepared this year and every year to come.

1. Be organized and keep good records

Keeping all your records and having them organized is your first step in preparing for taxes.  It also will help you keep your business running smoothly, and if you ever face an audit all the supporting documentation will be easily accessible.  All your records should be kept for at least seven (7) years.  Hiring a professional bookkeeper, even a part-time one, is a good investment and will help ensure you have everything in order. We always encourage our borrowers to consider a professional bookkeeper as an investment in their companies rather than an expense, since it will save them headaches and hassles not only if audited, but when it comes time to apply for business financing, their documentation is ready to go.

2.  Repeated losses are a red flag.

If your business shows a loss for two out of the last five years, the IRS is likely to want proof that this is actually a business and not a hobby.  If the agency determines the venture to be a hobby and not a business, all deductions will be disallowed.  There are legitimate instances when businesses face a few down years, but if that’s the case it is up to you to prove it with supporting documentation (see Tip 1 again).

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3.  Deductions are important but don’t overuse them.

A business owner can file a Schedule C with his or her taxes to report the business’s profits and expenses.  These expenses are used to reduce taxable income.  Reporting expenses that seem out of line with the business can raise eyebrows at the IRS. These are valuable deductions for small business owners.  The key is to keep detailed records as you go through the year, classifying the expenses.  And of course, hang on to the receipts.

Don’t avoid taking legitimate deductions to which you are entitled.  Instead, report accurately and make sure that you have the proper documentation to justify each deduction should the IRS come knocking.

4. Home-based businesses need to be careful.

Many Amazon Marketplace businesses are home-based, but home offices have a reputation as a red flag trigger and in the past, this was a complicated write-off.  In order to make it easier for small business owners, the IRS simplified the method for claiming this deduction, but don’t interpret that to mean they have loosened standards.  In order to qualify, the office needs to be a completely dedicated space that is used solely for your business.  A desk in the corner of your bedroom or the kids’ playroom doesn’t cut it.  Another audit risk arises when you claim a home office but have separate office space elsewhere.

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Tax time doesn’t need to be as stressful as its reputation.  If you prepare all year long by keeping organized, don’t take unwarranted deductions, and take a deep breath, you will be able to approach your returns with confidence.  And remember to contact a tax professional if you get stuck.  

Dealstruck is a provider of financing to small business.

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