The belief that Internet Marketing is a tax free industry is basically the worst and most dangerous myth in the market. Men and women enter IM thinking that because they are earning money online and being paid through, mostly, PayPal–they do not have to pay taxes on that money. This is untrue! More to the point, failing to pay taxes on this income could very well land you in tons of trouble. You don’t have to panic, though: Online Marketing taxes don’t need to be stressful. Below are great tips to help you out.
1. Obtain an appointment at your local Small Business Association. All communities have some kind of small business helping association or organization (usually run via a local community or city college) that has many trained experts on hand to help you both set up your business and ensure that all of your tax issues are carefully and correctly taken care of. Best of all, this resource is almost always zero cost!
2. Keep an eye on every little thing. This is worth repeating: keep track of everything. You can do this easily enough with the help of Excel. Put together a spreadsheet and record every last cent you earn with your Internet Marketing business in addition to one that tracks every single cent you spend on your IM efforts. Be sure to keep receipts and invoices for all of the money which you fork out.
3. If you have money for it, work with an accountant. This will keep you from having to worry about the numbers and the taxes for your small business. You tell them the amount of money you’ve made, show them how much you’ve expended (you’ll need proof of these things) and they take care of the rest, particularly at tax season.
4. Put money towards the taxes that you might owe at the end of the year. A good principle is to pay 30% of every sale. You can do this every three months or even on a monthly basis by making Estimated Tax Payments to the IRS. The IRS is currently set up well enough that they can get estimated tax payments from you whenever you feel like making them. This way you won’t have an eye popping number that you owe at the end of the year (which will be extremely stressful if you haven’t saved up for it). What is much better is that if you have somehow overpaid through your estimated tax payments, you will get a reimbursement just like you would if you were working for a traditional employer. You’ll want to consult with someone at the IRS so that you can get this set up the right way.
5. Discover which deductions you are allowed to take. When you operate your own business in your own home, there are a number of things, such as the money you pay in for utility payments, that become tax deductible–just like paying for other business related supplies. An accountant or an IRS rep will be able to help you know what all you can deduct come tax time.
Becoming intimidated by the tax process if you are an online marketer is quite normal. Fortunately, there are all kinds of resources available to help you observe the law and still keep yourself from losing your shirt to the IRS!