Keep Records of Everything
In order to make paying Sole Proprietorship taxes as painless as possible, you should keep detailed and accurate records on everything your business does, with particular emphasis on income and expenses. Keeping your financial affairs in order will save you a lot of time, effort, and stress you'd otherwise spend on figuring out just how much money came through your business. It's a good idea to run two sets of books, one for your business and one for your personal expenses, so that when the tax forms come, you can just grab the ledgers and sit down with them.
Remember Which Forms to Fill Out
As a sole proprietor, your business income is counted as personal income. That means you'll essentially file your personal taxes, adding an extra form or two to report your business income. You'll fill out the long Form 1040, Schedule C and Schedule SE. For the purpose of Sole Proprietorship taxes, you report business income and most of your business expenses (money you spent generating profit, for example, purchasing equipment and stock, traveling, etc.) on Schedule C. However, self-employment taxes, which include payments to Social Security and Medicare, are filed on Form 1040, line 27. The result of this calculation is reported on Schedule SE. Other payments you need to watch out for are those for your retirement plan and health insurance premiums, which are filed on Form 1040, lines 28 through 29. What will be taxed in the end is your profit, namely your income after your expenses have been subtracted from it. Note that your situation may vary depending on how you do your business, so make sure to consult tax specialist or a tax lawyer when in doubt.
Need More Help?
We can help you ask a lawyer a business tax question about your Sole Proprietorship. You may also want to find out more about incorporating your business, which can provide significant tax savings.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
