Taxes for Internet Marketers
It is required by the laws of the United States that every business pays income taxes for the federal government and the state government. Even the online businesses can’t escape that. Every business in Libertyville has to pay income tax to the government. However, there’s a continuous debate on tax legislations with respect to online business taxing. Do the online businesses in Libertyville have to pay taxes? If so, how does an entrepreneur prepare a tax file for an online business? Continue reading to find out.
The period of time when the tax file preparation begins is probably the most irritating and frustrating time of the year, for any entrepreneur. It’s hectic to sort out your financial records, and even more frustrating when you learn about how much tax you own to the government. The feeling would be the same for an internet marketer, however, one could say that an internet marketer is luckier than a traditional businessman.
Tax benefits for an internet marketer in Libertyville
Though many of them don’t know this, internet marketers can certainly enjoy some tax benefits within Libertyville.
Most online businesses are run from home itself, and that alone can give you several tax benefits. For example, if the following IRS conditions are met, most of the cost associated with the house such as property tax, mortgage/rental payments, insurance cost and maintenance cost can be reduced.
- The home office is exclusively and regularly used for business purpose, not for family or personal use. However, even if you use it 75% of the time for business purpose, you can meet the criteria.
- The home office is the principle location of the business, i.e. business activities conducted from the home office can’t be conducted from anywhere else.
Consider the following example to understand the benefits of a home-run online business:
Suppose your monthly rental or mortgage payment in $900, and you use 20% of your rental space for the home office, then monthly you are entitled for a deduction of $180.
Working with freelancers and independent contractors, as opposed to employing people to work in an online business also have some tax benefits. For the latter, you need to pay Social Security tax, medical expenses and unemployment tax, however, none of those expenses are included when you hire freelancers. When you hire freelancers for the online business, you need to make them sign a contract stating that they are working for you as independent contractors.
Sales tax on internet marketing business
This is a debatable tax question and different states adopt different sales tax strategies for online businesses. Many states exempts online business from sales tax, unless they also operate a physical store. Some states, however, have adjusted the sales tax regulations to include internet concerned businesses. Some online businesses use the concept ‘affiliate marketing’ where sales are generated through affiliations. Some states have enforced laws with respect to affiliate marketing that you need to collect and pay tax on products purchased via affiliations.
Other expenses deducted from tax of an online marketing business in Libertyville
In addition to the home expense, following also can be deduced from your annual tax payment:
- Payment to the web hosting company
- Cost of the domain name
- Internet access fee
- Website design fee
- Monthly subscriptions for online services used by the business
If you are operating an online business, it’s important that you are aware of these tax benefits and the tax regulations in your respective state. You also need to be aware of the updates to the sales tax rules, which are usually not informed separately. Call us at Libertyville, if you need assistance with preparing the tax files for your online business.