A:

Online businesses differ in operating needs and expenses but incur many of the same costs that other businesses do. Calculating business expenses involves determining the expected utilities, furnishings and product costs required. Online businesses likely require reliable Internet access, frequent computer usage and communications services. Phone usage, Internet services and software are likely operating expenses. Website owners incur fees associated with creating and maintaining the site. Businesses selling a product may budget product costs, and they may collect sales taxes from customers. If any inventory is stored, storage space may be rented at a cost to the business. Many of these expenses are eligible for business tax deductions or may be depreciated on future tax returns.

Entrepreneurs should estimate approximate expenses as part of a business plan. Taxes are a common expense for most businesses and many opportunities to reduce tax liability are available to small businesses. As much as $5,000 in startup expenses may be deducted in the first year. Consulting fees, professional assistance and advertising may be deducted, for example. Other expenses such as property expenses and vehicles may be depreciated over the useful life of the asset. Depreciated assets may not be deducted. Depreciation generally applies to capital expenses.

Ongoing expenses may include utilities, capital expenses and employee salaries. Salaries may be a significant expense for online businesses. Small business owners should track ongoing expenses and look for expenses to reduce. Business owners should seek advice from peers to develop realistic goals and planned expenses as part of a formal business plan.

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