Once an individual decides to start their own business, they should become aware of all legal and tax requirements regarding the product or service they will sell/provide. Reviewing our Small Business Overview page is highly suggested.
The following are key items you should be aware of as a sole proprietor from a tax perspective:
- Your profit or loss will be reported on Schedule C; Profit or Loss from Business of form 1040. (Click here to view Schedule C)
- Your income will be subject to self-employment tax in which you will pay both the employer and employee portion at a rate of 15.3% and it will also be subject to your normal Income tax rate.
- Be sure your business cannot be considered a “hobby” by the IRS. Click here to see more information about distinguishing if your business may be considered a hobby by the IRS.
- The tax Year will end on December 31.
- The accounting method is by cash only.
- Open a separate bank account for your business.
- Keep good records.
- We highly suggest you create an LLC to protect your personal assets.
- Also high suggest you use Quickbooks Self-Employed app