Basic Bookkeeping Principles for Your Home Based Business

So you’ve decided to work at home instead of finding a regular job. Here are some simple bookkeeping principles you should be aware of.

**Income earned from working at home is still considered taxable income by the IRS.

You must keep accurate records of your income and expenses in order to determine whether or not you’ll have to pay Self Employment tax on the money you make.

**Record keeping for your home based business is relatively simple.

You don’t have to invest in an expensive accounting software package to keep accurate records of your income and expenses. A simple spreadsheet method will do.

**If you pay someone to keep records of your income and expenses from your business, those fees are tax deductible.

Oftentimes people who work at home either don’t understand the concept of bookkeeping or simply don’t want the added stress it can cause. For those, hiring someone to keep track of income and expenses is easy, smart, and beneficial.

For many, bookkeeping is their choice of work that can be done from a home based business. For those who don’t want the headache of doing their own books, they can hire another work-at-home professional to do it for them and take a tax deduction for the fees they pay to have it done.

**What kinds of records do you need to keep for bookkeeping purposes?

Whether you bill hourly or contract work on a per project basis, you must keep track of all of your income and income-related expenses. Items such as office supplies, postage, mileage (if you travel for business purposes), educational expenses, networking opportunities, and business-related seminars are a few examples of income-related expenses.

Paper, ink, envelopes and other office supplies as well as office equipment and furniture are also tax-deductible business expenses even for those who work at home.

Other tax-deductible expenses include classes or seminars that you pay to attend in order to further your education or promote your business as well as dues and fees for civic or private organizations you belong to.

Utilities, phone charges and a portion of your rent or house payment are also necessary business expenses that may be tax deductible.

Now that we’ve discussed some basic bookkeeping principles, let’s look at some information concerning spreadsheet applications to keep it simple.

1). Most Windows based software come with a standard spreadsheet application like Works Spreadsheet, Lotus or Excel.

2). Spreadsheets are easy to use and require very little knowledge and skill to put into practice. All you really need is one column or page for income and one for expenses.

3). Spreadsheet formulas are easy to learn and extremely important to use in keeping accurate records of your business income and expense. Most spreadsheet applications come with an “auto sum” feature for totaling columns or a series of cells. If not, the formula for adding is =sum(cell:cell) for a column or a range of numbers. Other formulas include =sum(cell/cell) for division, =sum(cell-cell) for subtraction, and =sum(cell*cell) for multiplication.

Whether you choose to do your own bookkeeping or hire someone to do it for you, remember that keeping accurate records of your income and expenses is absolutely necessary for those who work at home!