If you work as a sole proprietor of your own business, it's important to plan ahead to make sure your taxes are paid and your business income and expenses are reported correctly. These Q&As may help answer questions you have about tax treatment of your business.
If you operate a business and you are not an employee, you are generally self-employed. You can be self-employed in addition to your regular job as an employee.
Probably. If you own a small business, you are generally self-employed unless you have formed a corporation. You may be called a sole proprietor, a partner in a partnership, an independent contractor, or a consultant.
If you form a corporation, and the corporation pays you as an employee, you are not self-employed for tax purposes.
When you are self-employed, you pay Social Security and Medicare tax as self-employment tax. Unlike wage earners who pay half of Social Security and Medicare tax themselves and their employers pay the other half, self-employed persons pay the entire tax themselves.
You should report all earnings generated from your business as self-employment income, including revenue from customers, clients, and organizations. To calculate your net self-employment income, TaxAct reduces these earnings by your allowable expenses.
You can deduct ordinary and necessary expenses for your business. This includes but is not limited to:
If you have any income that is not subject to withholding, including self-employment income, you may need to send tax payments to the IRS four times a year to avoid owing interest and penalties when you file your return. These payments are called quarterly estimated tax payments.
You generally must make estimated tax payments if you expect your tax liability to exceed you're the tax withheld from your pay by $1,000 or more.
You may not have to make estimated tax payments if you have enough tax withheld from your job to cover taxes on all your income, including your self-employment income. You can even increase the amount you have withheld from your paycheck so it covers income from both sources.
Make sure you have enough total tax withheld and paid in estimated taxes to avoid a large tax bill when you file.
Estimated tax payments should cover both self-employment tax and income tax. Otherwise, you may owe a large tax bill, and potentially interest and penalties, at the end of the year.
If you are a sole proprietor, TaxAct reports your business income and expenses on Schedule C, Profit or Loss From Business.
TaxAct then reports all self-employment income on Schedule SE, Self-Employment Tax. If you file a joint return and you and your spouse both have self-employment income, TaxAct reports each spouse's self-employment income on his or her own Schedule SE.
August 1 — Certain small employers
Deposit any undeposited tax if your tax liability is $2,500 or more for 2018 but less than $2,500 for the second quarter.
August 1 — Federal unemployment tax
Deposit the tax owed through June if more than $500.
August 1 — All employers
If you maintain an employee benefit plan, such as a pension, profitsharing, or stock bonus plan, file Form 5500 or 5500EZ for calendar year 2017. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends.
August 10 — Employees who work for tips
If you received $20 or more in tips during July, report them to your employer Details
August 10 — Social security, Medicare, and withheld income tax
File Form 941 for the second quarter of 2019. This due date applies only if you deposited the tax for the quarter timely, properly, and in full.
August 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in July.