With the New Year season over and the dreaded tax session approaching us and, after one year of working hard and making so much of money from internet, now it is time for you to think about what the tax deductions you can get from your online business.

One of the reason I like my business more than a job is my own business simply has more tax deductions than a job. If you are a business owner, then you are on the right track to enjoy many tax deduction benefits. However, this is not easy. You have to do a lot of boring paper works, filling and preparation in order to make it.

Before we do any filling or preparation, let us find out some of the basic information about taxation for online businesses. I did some research and I am going to share it over here with you.

Disclaimer: I’m neither an expert in tax nor a qualified tax consultant. All the information I wrote in this article was based on my own research. I just want to share what I found. Different Countries has different laws on taxes. So I would recommend you to consult your local legal tax adviser before you take any serious actions.

My Research on Taxation for Online Business

Affiliate Marketer, You must report your income if you make more than $600 in a year

Affiliate programs offer one of the best ways to make money on the internet. There are plenty of people making a living from this. So for those affiliate marketers, if your income from affiliate program in one year is $600 or more than that, you have to report your income to IRS but, then you can write off your expenses for hosting, domains, advertising etc.

According to my research, most of the affiliate networks such as CJ(Commission Junction) and LinkShare will send and request you to fill out a form called US Tax 1099-Misc Form. This is just a filling for those affiliate networks to keep track your income. Although you only receive this form if your income is more than $599, however, this doesn’t mean that you are not taxed. Like what I said, you should consult your accountant for more information.

Tax Deduction from Your Home Office

Majority of home business entrepreneurs run their online business from their home. If you run your online business from your home, then you can get some tax deduction from your home expenses. But you have to meet certain IRS condition first. The conditions are:

1. You must use your home office regularly for your business activities such as customers support and etc.
2. Your home office is your principal and main place for your business activities. That means your business can not be ran from other places.

If you meet the conditions above, then most of the housing expenses such as mortgage, utilities bills, rent payment and insurance costs can be filled for tax deduction.

You cannot deduct the entire housing expenses if your family is staying in the same house with your home office. Exception is you declare that 100% of your housing space is used for business. However, in most cases, most of the home business owners stay with their family and only use a room or small space for business activities.

In this case, you have to declare the space you are using for your home office. For example, you are using 30% of your housing space for home office. So the maximum deduction is 30% of your housing expenses. So if you are paying $900 for mortgage, then you only fill $270 for your home business tax deduction.

People who works with you in Online Business

In business, you can leverage on other experts to help you accomplish some tasks. For example, you have a person who helps you in copywriting. Someone helps you in web design and etc. You pay them money to do the jobs for you and you have to report how much you pay them.

You have 2 choices. You either declare them as your employees or contractors. For employees, you have to take care of their social security and Medicare while you don’t have to do for contractors. The IRS has a form for you to find out whether they are your employees or, contractors.

Other Tax Deduction

There are a lot of tax deductions available for you other than above main deductions. Here is a list of common expenses that you can use for tax deduction of your home business:

• Website Expenses Such as Domain Name and Hosting
• Working Computers and Software
• Research material such as e-books, magazines, membership subscription, freelance partners and etc.
• Business phone calls
• There is a long list of expenses for tax deduction over here. You can check it out.

Visit Following Web Sites for More Information

Below are some web sites that you can visit to get more information:

• The Internal Revenue Service. IRS, definitely a great place for information on federal tax issues.
• The Small Business Association.  This site provides a lot of tax and legal information for small business owners.
• Nolo Press. You can find some education materials on tax over here.

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