Fixing Electronics Side Business - What Info Do I Need Come Tax Time?
Hello, Thank you for taking the time to read and answer my question. I want to start fixing phones, computers, game systems, etc. on my own. I will accept cash/cashapp for the majority of customers unless I know them personally, then they can pay via check. I would be going to people's homes or fixing their devices in a public setting while they watch. The repairs usually require a new part as well. What information do I need to keep records of come tax time? Can I get deductions from the part costs if I keep the order receipts and submit them? Thanks Codee
Answers:
Congratulations on your new business venture.
I will give you some general thoughts to help you.
First and foremost, you should open a separate bank account where you deposit all the income and from which pay your expenses. You absolutely do not want to use a personal account. Why? If you ever got audited, if any business activity went through a personal account (meaning you commingled funds), IRS can and will force banks to surrender all your bank accounts, and IRS will treat any deposits to your personal account as income (even if it’s not truly income). IRS is correct that taxpayers should never commingle funds. Taxpayers do it all the time, but it’s to their detriment because they hand the IRS the right to audit all their personal accounts. Why make it harder on yourself?
To answer your question, you should keep any records pertaining to your business. That means copies of invoices you give to customers, copies of deposit slips when you make deposits to the bank account, copies of bank statements, copies of check stubs, copies of receipts when you make purchases for parts, etc.
As far as expenses are concerned, you can deduct any legitimate business expense you pay on behalf of the business. That includes the parts you mention. You cannot deduct things like meals, entertainment, clothing (unless you pay to have a logo added to the clothing), haircuts, etc. You can deduct business mileage. That’s going to be a big deduction for you, so you need to keep a complete and accurate mileage log.
It’s best to keep all your records for seven years, in case you’re audited. If you don’t have records, IRS has the right to deny deductions.
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