What Every Work-from Home Woman Needs to Know about Taxes

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Whether you own an Etsy shop, sell products through a direct sales company like Mary Kay or Pampered Chef, or decorate birthday cakes on the side , you want to make sure your business is on the right side of the IRS. These 7 small business tax tips are essential for any woman working from home to know!

You know what’s crazy?

For all my love of numbers, I hate taxes. Just the thought of gathering all that paperwork, trying to mess with software, and crossing my fingers that I did everything right and won’t owe a cent, makes me break out into a cold sweat — no joke!

As we’ve added a rental property in a different state, Joseph’s real estate gig, and my own blog-turned-business, the more complicated our taxes have become. I wish I could just hide under the covers until April 15, but Uncle Sam probably wouldn’t like that too much.

Despite every excuse known to mankind, I finally sat down and forced myself to do a ton of reading and research on all things small business and taxes this year, and while I am not a tax professional, I learned a lot. But rather than keep all this information to myself, I figured it might be helpful to share my findings with those of you who also work-from-home.

Because whether you own an Etsy shop, sell products through a direct sales company like Mary Kay or Pampered Chef, or even take on a few side jobs decorating birthday cakes for friends and friends of friends, you want to make sure your business is on the up-and-up, no matter how confusing the tax code might be. It’s not only ethical, it’s just smart!

I have tried very hard to break down and bring you the most important tips, and will be updating this post as things change. So bookmark it, pin it, or tuck it away in your email to reference when you need it most. And brace yourself, because it’s a little on the long side — sorry!

1. Know How You Should File

There are a ton of filing or “classification” options to consider when you start a business. Are you a sole proprietorship? An LLC? A Corporation? There’s pros and cons to all of these, and we’re not going to cover all of them today, but here’s pretty much what you need to know:

  • If your net income {after all expenses}, is $400 or above, then congrats! You’re in business. The best option for you is to start as a sole proprietorship and file a Schedule C in addition to your personal taxes. Most small businesses start out this way, and it is the easiest, and less painful route to go.
  • If your net income is, or expected to be above $10,000, you may want to consider a single-member LLC. This separates your business assets from your personal so you are protected in case of a legal battle. You also file a Schedule C in addition to your personal taxes and you’ll have to pay self-employment taxes on top of everything else. This cost can get pretty hefty if you start making even more money.
  • If your net income is, or expected to be $20,000 or above, you will probably want to classify your LLC as an S-Corp. This requires a lot more paperwork, but you don’t pay self-employment taxes. Instead, you put yourself on the payroll, and only your wages are subject to employment tax.

There are, of course, a few more ways you can file, but for small business owners and freelancers, these 3 are the most common, and certainly less confusing!

2. Keep Good Records

Everyone always stresses that you need to keep a really detailed set of books when you own a business, but they don’t necessarily explain what you need to include. You do not, under any circumstances, want to hand your CPA a shoebox full of crinkled receipts or I can guarantee you’ll literally pay for it!

At the very least, you’ll want to keep track of income and expenses. I use a simple spreadsheet for this, but if you’d like something a little bit more structured, I would strongly suggest a software like Quickbooks, which integrates seamlessly with TurboTax.

I currently use Quickbooks Online and it is super super easy to use. The learning curve is practically nil for the computer-savvy, and the ability to import all your transactions automatically is so handy!

In addition to some sort of record keeping system, it’s also good to keep track of all your paid invoices and expense receipts. Everything I am paid, or pay out, is printed, hole-punched and filed away in a 3-ring binder with an receipt or invoice number written across the top. Or, you can do everything digitally through Evernote.

What Every Work-From-Home Woman Needs to Know About Taxes | Creative Savings

3. Don’t Ignore Quarterly Taxes

Even if you don’t think you will make very much {or owe for that matter}, it is still very important to pay taxes on your income every quarter. Note: I did not do this for 2014, and as a result, faced a rather large bill when it came time to submit my taxes!

Most tax professionals suggest setting aside anywhere from 20-30% of your income to pay in taxes on form 1040-ES each quarter. However, if you file as an S-Corp, you would need to send in all payroll taxes and payments via Form 941—depending on how much you make, this could be every month or every quarter.

One mistake I made as an S-Corp was to ignore State Unemployment Taxes. But you have to pay those too, and they get filed every quarter along with your 941. At the end of the year, the government will get their share on Form 940.

Ay yi yi….almost makes you NOT want to be in business, right? Don’t worry, you’ll get through this!

12/22/15 Update: If you file as an S-Corp and also pay health insurance out of your own business, you must add the total amount of your annual premium to Line 2 on your Quarter Four 941 along with the wages you earned. However, you do NOT need to count that as taxable. The government just needs to see that you paid it so you can deduct it on your year end tax returns. I know that doesn’t sound like it makes a whole lot of sense, but according to my CPA, it’s the way the government wants your health insurance recorded from now on.

4. Don’t Forget about 1099’s

As your business grows, you may find yourself paying an assistant to help out, or you might have a one-time project that you need done for a set fee. This is called contract labor, and you need to issue a 1099 (Miscellaneous Income) at the end of the year to everyone who you paid over $600. 1099’s are pretty easy to fill out, but they do require your helper to sign a W-9 with all relevant information.

As you receive money from various businesses, you will probably receive a 1099 as well. Report all of these on your tax forms {plus any other income} so as to eliminate any red flags. Every time a 1099 is filed on one end, the IRS looks for an expense on the other. They need to balance each other out, otherwise, you’ll have someone official poking around asking questions!

Note: 1099’s need to be issued and sent before January 31st.

5. Take Advantage of Deductions

Deductions are really just another fancy term for expenses, and claiming them on your tax return will lower the amount of income you are taxed on, which means you will owe the government less money — win!

One of my favorite deductions is the mileage deduction. Many business owners (including  me in the past!) discount this deduction because it seems too complicated to keep track of. But it’s actually really easy once you know what to do, especially if you take advantage of this easy to use mileage log.

Your Blogging Business eBook

For an exhaustive list of what you can deduct as a small business, I found A Freelancer’s Guide to Taxes really helpful. This post takes you line-by-line through Schedule C so you actually understand what expenses to put where.

However, a somewhat grey area in the realm of deductions has to do with the “business use of your home.” Your Blogging Business: Tax Talk and Tips from a Bookkeeper Turned Blogger by Nikki Hughes has the best explanation of this I’ve seen so far, and her book is a pretty good resource as a whole for everyone who owns a small business, not just those in blogging. Definitely check it out!

6. Depreciate Your Equipment

Depreciation of equipment sounds like a term that only high paid CFO’s use, but even if you’re a small business owner, you probably use a laptop to connect with customers, a camera to take product photos, and office furniture to use and sit on while you’re doing your work.

The IRS allows you to depreciate all of these items over a period of time {usually 5-7 years} to help lesson your tax liability even further — meaning, that’s less you have to pay in taxes — another win!

You should use Form 4562 to calculate depreciation, but if you are unsure how to do it yourself, I would highly suggest you talk to a CPA about it to figure exactly what you can depreciate and by how much. The book I mentioned above also has a good overview of depreciation and how it works.

What Every Work-From-Home Woman Needs to Know About Taxes | Creative Savings

7. Don’t Be Afraid to Hire a CPA

This leads me to my last point — if taxes really make you break a sweat, it’s okay to hire a CPA. In fact, it’s recommended!

You don’t want to get yourself into trouble because of silly mistakes. Despite there being great software out there that can help guide you through the process, taxes are such a complicated mess. And because CPA’s know the tax code inside and out, they can help you file in such a way that benefits you.  I’ve heard many a horror story about small business owners who try doing taxes themselves, and end up owing a lot more than they probably should have.

However, a CPA is not a crutch, and as a small business owner, you need to be aware of at least some of what goes into the tax filing process so you know exactly what to keep track of. This always makes it much easier for the CPA to do his job for you, which means less hours he’s working on your return, and the less you have to pay for it.

Whew — that was quite the post — but you made it!

Even though taxes are not necessarily a fun topic to discuss, ignoring them won’t make the situation go away. It’s your responsibility to do your homework and understand your tax liability no matter how much you earn. Uncle Sam won’t be quite as forgiving if you don’t!

As I mentioned at the beginning of this post, I am not a tax professional, so everything I say here is not gold, so please do not take it as such! These are simply the takeaways of what I have learned in the few years I’ve been doing business.

That being said, I am open to any and all questions about small business taxes you have in the comments, and if I don’t know the answer, I’ll find someone who will!

Do you own a small business?

How do you handle taxes?

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Tired of forgetting important tax documents? 

Disclosure: Some of the links in the post above are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. Read my full disclosure policy here.

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  1. Making sure that you have everything together for taxes is super confusing (but so important). This post is really helpful because there are some aspects that I’ve almost overlooked. Thanks for the info!

    1. Just finished assembling my taxes yesterday! 🙂 It can be such a chore – but it’s been a little easier when I have everything I’m going to need mapped out in advance.

  2. I’m in the process of trying to start a freelance styling business. If I begin as a sole proprietor, do I have to pay quarterly taxes if i’m just getting started and will probably make less than $400? Obviously, I will have to eventually, but I just had to ask. I haven’t booked any paying clients yet, i’m just trying to figure out all the legal stuff before I officially go into business. Any advice would be appreciated.

    1. As you get closer to that time you really will want to consult with a CPA. There are so many things that can differ from state to state so you will need that professional advice to keep you from making costly mistakes!

  3. Kalyn, Thank you so much for your blogging on this topic. What to do about taxes and pricing my art work are my main focus right now! (It seems every waking moment) I recently retired from teaching after 32 years and am getting back into creating my joy! I have been doing my art work for 30 + years. I participated in a small community art collaborative event in Nov 2015 and had a piece in a juried exhibition in Feb/Mar 2016. I have my first juried art festival memorial weekend. 🙂 I have an EIN #, do I need to file for a federal tax # right away, as well, or can I wait until I start making some money? I have pretty good records thus far- I have spent $2600 on supplies to create inventory( canvases, paper, card stock, paint,frames etc), marketing (bus cards, packaging materials, labels) Equipment (canopy + panels, furniture for festival set up) . I have made about $300 since Nov. 2015- basically just word of mouth and my facebook bus. page. Should I just start for tax purposes as of January 2016 and go from there? At what point do I need to file for a business license if working/creating out of my home, no street sign? Thanks for your help!
    I have read many of your blogs this morning and will definitely be book marking your site! Happy blogging!

    By the way….great name! 🙂

    Seaside Arts by KayLynn

    1. YAY for finally getting your art into the world and available for purchase! Here’s some answers to your questions:

      1. Your EIN # is considered a Federal Tax ID, so you would just use your EIN whenever a Federal number is required {and to file for taxes sake}.
      2. I would start your bookkeeping from January 2016 just to make it easy.
      3. Since you’re already starting to earn an income, it’s good to file for a business license as soon as you can. States/Counties/Cities are all different, so you may need a license to operate in all three. A quick Google search should bring up the specific requirements in your area.

      Hope that helps and good luck!!

  4. Thanks for the great post. I’m a stay-at-home mom with a small freelance business. My kiddos will all be in school next year, so I’m hoping to expand my freelance business. This article helped answer some of my immediate questions.

    1. How exciting, Sarah! Unless you really love taxes and paperwork, I would really stress #7 as your business expands. If you can find an affordable, reliable CPA they are well worth the expense. Every hour you don’t spend working with the IRS is one hour more you can spend focusing on your business!

  5. Loved the article so I am starting a home based craft business alittle confused when I should worry about taxes how much I have to make and etc. and do you include the money you started with toward your business as in if I only make $50 a week after cost (just throwing a number out there) do I worry about that and also I am looking into blogging for large blended families how do I get into that and make money from such? I know a lot of questions but out of all the articles you seem to have yours pretty put together

    1. Hi Jennifer! The number to start worrying about taxes is when you start making $400 or more in gross sales — so no expenses taken out yet. When you reach that number, you will just file a Schedule C with your year end personal taxes, and depending on whether you have a profit or a loss, you’ll pay your taxes to the government then. Definitely keep good records from Day 1 though!

      For blogging, you’ll definitely want to start with this post: https://kalynbrooke.com/business-blogging/how-to-start-a-money-making-blog/

      Hope that helps!

  6. Great post! I’ve been trying to keep track of my expenses and income on an Excel sheet but am having trouble figuring out what to keep track of. What do you keep on your sheet?

    1. It is a great idea to keep track of every penny that leaves your business, no matter the size of the business or the size of the expense. The trick is categorize everything so you can sort it however you need when tax time comes. I’m able to sort my expenses by date, amount, and category. This gives me the ability to get lots of information with a couple of mouse clicks. When it comes to picking the right categories, creat categories that make sense to you {like “office supplies,” “advertising costs,” and “Equipment.” Definitely check out the list of potential deductions here and make sure any of those that apply to your business are their own category. You’ll thank yourself when tax time comes around!

  7. Great post! I am a CPA and we greatly appreciate small business owners who are savvy like yourself! Great tips for fellow business owners out there!

    1. Thanks so much for that encouragement, Kaela! I was really nervous when I put this post together and it is so easy to get bogged down with all the details.

  8. I have wondered (and freaked) about what I need to do for taxes. I am so glad I stumbled on your blog post! Thanks for sharing this information!

    1. You’re most welcome! Taxes always feel incredibly scary when you’re not sure how to handle them. I’m glad this post made you feel more confident!!

  9. Thank you so much for putting this post together! I can’t tell you how helpful it was – both for me and for all the other entrepreneurs procrastinating the tax/bookkeeping part of their business. Another great post!

  10. Thank you so much for this! What a great place to start and I will definitely be looking into those books you recommended! 🙂 I haven’t made anything on my blog yet, I just launched this month, but In case I do have to file takes, I am keep all my receipts and everything organized because if it gets to difficult to do on our own, I will hire someone haha!

    1. You’re welcome, Rebecca! It’s so much easier to have everything organized even before you start pulling in an income. Good for you for getting a head start!

  11. THANK YOU, THANK YOU, THANK YOU! My blog/etsy/freelance is growing, and I have been doing some research… you answered most of my immediate questions with this post!!! Thank you so much!! Looking forward to more wise tidbits in my inbox. 🙂 Thanks again!

    1. You are most welcome! Congrats on starting your own business — it’s so much fun to see them grow!

  12. I had a quick question regarding quarterly tax payment – does the recommendation of setting aside 20-30% of income for quarterly tax payments also cover self-employment taxes? Should one add an additional amount on top of that 20-30%?


  13. My daughter sent me this link because I am starting an at home customer service business. I am grateful for the additional information. Thank you for taking the time to blog about it.

  14. I just opened a small business out of my home on March 1, 2015. I have failed to submit any forms for this quarter. Do I need to submit them asap and expect a fee at some point?

    1. I would say no, because you just started, and therefore, wouldn’t have much to submit for the quarter. I think it’s totally okay to wait to submit until the next one {at least that’s what I would do, but then again, I should probably also tell you to check with a CPA so I don’t get in trouble if I’m wrong!} 🙂

  15. Tax time can be pretty daunting for any business owner. An easy way I found to ease the pain of tax time is to track my receipts on a cloud-based accounting app. It helps with quarterly taxes and gives me an idea of when/where/how I spent my money. I use Liberty Accounting for iOS but any cloud based accounting app will work… the great thing I found was I didn’t need to have a ton of accounting knowledge to use it.

    Doing everything online saves me a ton of clutter too! This year my friend (who sells for Trades of Hope) used DIY Tax … she was able to do both her federal and state returns for free! I bookmarked it so I’m ready for next year. Just more ideas for savings!

    Thanks again for your blog! I love it

    1. I love that idea, Em! Paper clutter is my ultimate nemesis, and going paper-free seems so unattainable sometimes. I’m finally getting around to maximizing my Evernote folders though, and am hoping to use it more for paper-free planning…..tax season and business receipts would also be a perfect use for this. Going to look into the two companies you mentioned and see if they might possibly sync with Evernote!

      Thanks so much for reading!

  16. Thank you so much for this information! I’m pinning for future reference as I think I will need it next year. Have a great day!

    1. Awesome! Let me know if you have any questions when you get to that point. And have a wonderful day as well. 🙂

  17. What an informative post! I teach piano lessons out of my home and really need to start doing this and now it’s not so scary. Thanks!

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