When earning an income online, many of us may feel as if we have been unshackled from the traditional confines of doing business. Unfortunately, there are still many real world implications that come with earning money online and as such, it is necessary to protect both yourself and your business by being proactive in the process. Documenting expenditures and revenues will save future headaches when and if local, state or federal entities require you to file reports and taxes with them. Below are a few simple suggestions and tips that will keep your operations legal and hassle-free.

Become Incorporated

One of the best ways to protect yourself from unwarranted lawsuits and further legal action is to incorporate your business. Commonly referred to as an LLC (limited liability corporation), this structure will help reduce or eliminate your liability to potential defendants in the case you are ever sued or challenged in court. Instead of pinging servers with your blog listed as a proprietorship or small business, consider upgrading your legal status to a limited liability corporation. Your tax implications may change but it is worth the added protection you will receive if anything ever goes awry.

Pay Taxes Quarterly

Most self-employed individuals discover that their tax burden is different than the average person: both in amount and in terms of when they need to file. The government requires that self-employed individuals pay their expected self-employed taxes on a quarterly basis; the reasoning behind this is that the government needs the revenue to operate throughout the year and by the end of the tax cycle, you have paid the full amount in taxes for that year. In some cases, you may end up overpaying but it is much better to receive a refund on next year’s taxes than to receive a tax bill or even worse – penalties for failure to pay.

Delay Your Losses

Even if your business has a net loss this year, you are still required to file and report such activity to the appropriate state and federal authorities. You can, however, “roll over” these losses to another year in order to offset the impact it may have on your earnings. The technical term for this is a net operating loss deduction, which can vary depending on how much you have made and how much your losses are in any given year. There are limits on how much you can carry over and for how long such losses can be delayed into the future. If you are in need of such help, you should consult an accountant or tax professional for precise information.

Filing Online

By pinging servers belonging to the IRS and other state entities, you can easily file your taxes online and remit any necessary payments electronically. We always recommend keeping a paper trail that consists of any records or receipts generated in an online format; glitches and errors may cause a perfectly-filed report to not be received by the appropriate agency (this can happen in any instance – electronic or not). In most cases, however, the filing process is simple and quicker than doing it the traditional way.