As a small business owner, you need to juggle different aspects of your business simultaneously. However, nothing is more pressing and significant than filing your business taxes properly. It’s one of the most time-consuming processes you’ll need to undergo.
Tax season is one of the most stressful times for any business owner. However, having a reliable partner who provides professional tax filing services can make the whole process easier and hassle-free. If you do your taxes yourself, here’s the ultimate tax filing guide for sole proprietors.
How are Sole Proprietors Taxed?
This is one of the first questions that comes to mind when filing taxes. A sole proprietorship is taxed differently compared to other business entities, like corporations. Your business is not taxed separately as you need to report and pay your business taxes as part of your personal tax return.
The IRS has termed this pass-through taxation because the tax liability is on the owner of the business, which passes through to the business owner’s tax return.
Determining Your Liability
As a pass-through entity, you’ll need to pay income taxes on your business via your tax returns, through the Schedule C in your Form 1040. The good news is that you don’t have to pay taxes on the full business income. You only pay taxes on the profit you’ve earned through the tax year. Regardless of how much money you withdraw from your business, your tax will be calculated on the amount calculated after your expenses have been deducted from your income.
You can deduct business expenses on your return; however, you need to make sure that they are accurately calculated. You can get help from a professional tax service to ensure that you file your taxes accurately.
How To File Taxes
Now that you’ve understood how sole proprietorships are taxed and the amount on which taxes are calculated, here’s how to file your taxes properly. As mentioned, you pay your business taxes as part of your tax return. Most business owners need to file two more forms along with their 1040.
Schedule C is one of those forms where the profit and loss status of your business is recorded. This form is also used to report your business mileage. The form is broken up into five different sections. These sections ask for information about your income, expenses, cost of goods sold, information about your vehicle, and any other miscellaneous expenses.
Schedule SE is another form required as part of your business tax return. You’ll need to report your self-employment taxes to the IRS. Even though you file schedule C and SE annually, you need to pay your self-employment taxes quarterly.
With such rigorous tax legislation and its significance, it’s important to know how sole proprietors are taxed, the various forms, deadlines, and the necessary deductions. To avoid making costly errors on your tax returns, it’s important to get the help of experts such as Ally Books and Taxes.
We provide tax preparation, Professional Tax filing Services, and compliance services to small businesses to make sure all their tax matters are processed properly. Our experts conduct a comprehensive analysis and maximize long-term wealth for businesses. Visit our website to learn more about our Accounting and Tax Services, or contact us for more information.