Every new phase of life brings many challenges as well as opportunities. Perhaps the most exciting of these opportunities is the chance to start your own business. The guideline below will clarify possible tax implications of starting your own business.
Being an Employee and a Business Owner. For tax purposes, you can be considered both an employee and a business owner at the same time. Your tax return should income all of your income.
Obtaining Information about Starting Your Own Business. The IRS provides free publications for small business owners. StrataTax, a consulting and tax services company, provides business consulting services as well as training and seminars.
Options for Organizing Your Business. There are three options under the federal tax code for the organization of your business: Sole Proprietorship, Partnership or Corporation. A number of factors, such as cost of start-up, exposure to risk or liability, and financing, may influence your decision about which structure is best for you.
Record Keeping Requirements for Sole Proprietors. It is important to keep records of your income and expenses for your business. Good records will help you more easily prepare required tax returns and financial statements. For more information about record keeping, please see the StrataTax article “Good Records Will Increase the Likelihood of Business Success”.
Reporting Business Income as a Sole Proprietor. Business income for a sole proprietor is reported on Form 1040, Schedule C or C-EZ and Schedule SE.
Paying Taxes as a Sole Proprietor. Net self-employment income is subject to income tax and self-employment (Social Security and Medicare) taxes. If you have employees working in your business, you may be responsible for Employment Taxes. As a sole proprietor, you will generally pay estimated taxes on a quarterly basis if you expect to owe taxes of $1,000 or more when you file your return. For more information on Estimated Tax see Publication 505 . Employment taxes are paid using Forms 941, Employer’s Quarterly Federal Tax Return, and Form 940, Employer’s Annual Federal Unemployment Tax Return.
Self-Employment Income and the Earned Income Credit. You may still qualify for earned income credit even if you have net income from a Sole Proprietorship.
Your tax preparer can provide you with more information regarding the impact job loss has on your income tax return. StrataTax, a San Diego consulting and tax services firm, is available year-round to assist you with income tax preparation and tax planning. Call us at (858) 225-7720 to setup your free initial consultation or visit us at www.StrataTax.com for more information.
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TAX ADVICE DISCLAIMER:
Please be advised that in order to ensure StrataTax’s compliance with the rules and standards required by the Internal Revenue Service (IRS), we are informing you that any tax advice contained in this communication, including attachments, is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or promoting, marketing or recommending this transaction or a tax related matter to another party.