Jean Wetzler: This is Jean Wetzler. I’m talking with Chris Wagner from the Small Business/ Self-employed Division about business income. Chris, what is business income and how do you determine if it’s taxable?
Chris Wagner: If any income you receive is connected with the business, if it’s clear to payment would not have been made if the business did not exist, then you have business income. Business income is taxable. Small business owners and self-employed tax payers must report all income for their business unless the lost specifically exclusive.
Jean Wetzler: Are there certain types of payments that business owner should be aware of?
Chris Wagner: Of course. There are traditional forms such as tax, checks, and credit cards. But business income can also be in a form of property and services. Bartering, real estate rents, interest, dividends, cause of death, damages or even kick backs are few examples of business income. Directly payment through a third party does not remove the requirement to report the income and pay the tax.
Jean Wetzler: But are there business deductions?
Chris Wagner: Yes. You can debt these expenses; the cost of carrying on a trade of business. There are several types; to be deductible business expense must be ordinary, common and accepted in the line of work and necessary, helpful and appropriate. It’s important to separate business expenses from other expenses, cost to be sold and capital on personal expenses.
Jean Wetzler: How important is record keeping in all these?
Chris Wagner: Keeping good record is imperative. Insufficient record keeping could cause a business ownership over report income and pay too much tax or under report and pay too little. There are benefits to having a form of set of books and records. Counting or financial software and separate bank accounts for business and personal income and expenses.
Jean Wetzler: What help does the IRS have for entrepreneurs?
Chris Wagner: I will say, it is a treasure tool of information and educational tools. If you start at IRS.gov/smallbiz, and look for the section titled “Online Learning and Educational Products” You can view streaming video of a small business workshop or order it on a DVD. We also have many other resources on our website.
Jean Wetzler: Thank you Chris. I’ve been talking with Chris Wagner of the IRS, this is Jean Wetzler.
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