Starting a home-based business on the Internet is easy you say.You have your web page built, your affiliate links and you’reready to go. Not really, you need to make sure you have all youri’s and t’s crossed when it comes to taxes.Getting StartedFirst, you will need to register your business name withthe city government. When I registered my business name with thecity I was charged $11 — so expect to pay a small fee when filingthis legal document with your local goverment.Second, you need to apply for an Employer IdentificationNumber with the Department of the Treasury (IRS). To file for an EIN,you will need to complete Form SS-4. You can find these formsin post offices, public libraries, online, or by contacting the IRS.Once you receive this document, keep it in a safe place — in otherwords, don’t crumple, stomp, or throw away — this identifies youand your business with the U.S. government and you will need this numberwhen you file your taxes.Third, you will need to check with your state government to determineif you need any specific licenses. Such as Retail Sales Tax Permit –if you are planning on selling items offline or online.Fourth, you may want to open a Business Account at your local bankonce the money starts to roll in. Keeping your money separate fromyour family account — helps you to keep your accounting accuratefor your business.What percentage of your income will go toyour State and Federal Government?You will need to pay the following taxes, at the following rate,on a quarterly basis:States Taxes — 3.7%Federal Taxes — 11.3%Social Security — 12.4%Medicare — 2.9%The first year in business is difficult, because you have no ideawhat you will be making–You will need to make a conservative guess.However, you will only pay what you owe against that of yourexpenses (your net income). For example, if you believe you will have$3000 in expenses during the year — and you believe in your first year,you will make $6000– you would report the following:$6000 (Money Made)- $3000 (Expenses) = $3000 (What you owe)This amount would be divided among the four quarters within the yearand paid to your State Government and the Federal Government.If you find that you will be making more and you have paid in for one quarter — you will have to adjust the balanceand divid it between the remaining quarters.The following is what you will submit to the Federal Government: 1) Federal Taxes-11.3%, 2) Social Security-12.4%, and 3) Medicare payment-2.9%. The State Government will receive only the 3.7% of your netearned income.(Please note: If you are unsure about anything, you should enlist thehelp of a CPA, regarding tax matters).Your estimated taxes are due on the following datesthroughout the year:April 15June 15September 15January 15To obtain more specific information you can read IRSPublication 505: Estimated Tax payments.Note: You are not required to make estimated tax payments until you have income not subject to withholdingon which you will owe tax. If you don’t make your first payment until a later period, you must divide your entire estimated tax by thenumber of payment dates remaining. If, for example, youhave three payment dates pending, you would pay one third of the total tax by June 15, the other third by September 15 and the last by January 15.Typical Expenses To DeductHere is a list of some of the expenses you can deduct.1. Your home mortgage — If you use a room solely for conducting business then you can take this deduction.There are a couple of different formulas to determinethe percentage of your home that is used for your business.You can use the “number of rooms” method or the “area method”.I would suggest using the “area method” because I can’t imaginehaving a home where all the rooms are the same size.With the area method, you would take the area of your homeoffice divided by the area of your home. Example:Your Office= 10′ X 10′ = 100 square feetYOur home is 1000 square feetYour deduction = 100/1000 or 10%2. Indirect Expenses — with indirect expenses you will onlybe able to deduct the area percentage (Note: use area percentagecalculated above) of the total cost. These indirect expenseswould include such things as:House paymentUtilitesTelephoneGarbage collectionInternet connection (If other people are using the Intenet)3. Direct Expenses — these are expenses that relate only to yourbusiness. Supplies Advertising Business account bank chargesKeeping Track of ExpensesTo keep track of all your expenses. and you are comfortable workingwith a spreadsheet software, I would suggest purchasing a smallbusiness accounting package such as QuickBooks or PeachtreeAccounting. To conclude, this definitely is not an exhaustive list ofwhat you need to know. However, this will giveyou a beginning as to what you will have to be awareof when starting a home-based business. As yourbusiness grows, your CPA will be able to assist you and keep you on the straight and narrow to yoursuccess on the Internet.