Did you know that any type of payment you receive in connection to your business is considered taxable business income and must be reported?
Let’s identify what are the types of payments that are taxable income for a business.
There are traditional forms such as cash, checks, and credit cards for services provided and goods sold.
In addition, if you receive a payment that would not have been made if you didn’t have the business, that payment is also considered business income.
Business income can include bartering, real-estate rents, interest and dividends, cancelled debt, damages, or even kickbacks.
Also, if you direct payment through a third party, it is still your income and must be reported on your return. But there are business deductions as well.
You have the ability to deduct business expenses — the cost of carrying on a trade or business.
There are several types of deductible business expenses.
To be deductible, a business expense must be both ordinary, which is common and accepted in the line of work, and necessary, that is, helpful and appropriate.
It’s important to separate business expenses from other expenses, such as cost of goods sold if your business makes or resells products, the purchase of assets, or personal expenses. It’s very important to keep good records about your business income and expenses.
You don’t want to over-report your income and pay too much tax, and you don’t want to under-report and pay too little.
There are benefits to having a formal set of books and records, accounting or financial software, and separate bank accounts for business and personal income and expenses.
More information about business income and deductible expenses is at www.IRS.gov.
Just type “smallbiz” — that’s one word with a “z” — in the search box.
That will take you to the Small Business and Self-Employed Tax Center.
Once there, look for the section titled “Online Tools and Educational Products.”
Here, you can access the Small Business Workshop with more information about business expenses, as well as other topics like record keeping, which can help you with your business taxes.