First year of taxes after starting a software business

by alex 17. April 2013 18:07

Everyone says that having a business is a great way to save money on taxes but there are so few real world examples of how it works. This post documents the start up business portion of my tax liability in 2012.

I used 2012 to gradually ramp up on my product, and I finally quit my day job in January of 2013. So, I was employed for the entire duration of 2012, which made taxes not-too-terrible (for taxes, that is).

I'm not going to write about my complete tax profile this year because that would require revealing my previous salary. Though I will make all earnings open next year, my old salary is not on the table =)

Services used in the first year of start up

The following services were purchased or rented for the business:

  • $120.00 - PersonalClass ASP Plan (Domain: nodicerequired.com) Pre-paid For 2 years 
  • $9.95 - Registration of otsix.com for 1 year(s)
  • $9.95 - Registration of release-manager.com for 1 year(s)
  • $9.95 - Registration of release-tracking.com for 1 year(s)
  • $9.95 - Registration of build-tracking.com for 1 year(s)
  • $9.95 - Registration of version-tracking.com for 1 year(s)
  • $9.95 - Registration of release-tracker.com for 1 year(s)
  • $9.95 - Registration of eisenhartsoftware.com for 1 year(s)
  • $25.95 - 1 year SSL Certificate for www.eisenhartsoftware.com
  • $2.00 - Dedicated IP Address Addon
  • $2.00 - Renewal of Dedicated IP Address 
  • $76 - PO Box

Services Total: $295.60

The SSL certificate and dedicated IP address are what allow me to take credit card payments online. The rest is just web space and domain names, and a PO Box.

The PO Box was written off as a rental; the rest were under advertising.

Writing off computer purchases

I purchased a laptop and a desktop with two monitors. From a large number of resources, you must use an item 100% for the business if you are going to write it off on your taxes. With this in mind, I had a hard time justifying writing off both computers. In the end, I wrote off only the laptop and its extended warranty.

Laptop Total: $1341.00

Summary

Due to the business, I had a total of $1636 to write off. Because I have a sole proprietorship, this was a write off against my earned income from my day job; if I had an LLC, I'd have had to carry the losses forward.

All told, before entering the $1636 in write offs, I owed an additional $400 or so on federal taxes; these write offs resulted in a $28 refund.

Next year will surely be more "interesting." =)

If anyone had advice on further items I could have written off, or any more tips, I'd be glad to hear them!

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