If you run a business as a sole proprietor, don't expect to get out of paying taxes. You are still expected to pay them and there are some different steps when it comes to sole proprietor taxes. By being prepared at tax time, you will have no problems and your taxes will be filed in no time.
First off, a sole proprietor is a business that is run by one person and is not registered as a corporation or a partnership. When it comes to sole proprietor taxes, they are done through the individuals personal taxes. There are some additional forms and lines to fill out before filing your taxes with the IRS.
Schedule C -- Profit or Loss from Small Business
Schedule C is prepared which goes through the profit and loss on the business. In order to fill out this form, you will need to have your business bookkeeping done up to the calendar year end. For this purpose, many small businesses choose to use December 31 as their fiscal yearend so they do not need to do a separate yearend for tax purposes.
The net income or loss is entered on Line 12 of the Form 1040 which has to be included along with any other income/loss. If there is a loss when it comes to a sole proprietor taxes, this may be used to decrease the total adjusted gross income, which is the amount before any exemptions or deductions.
Schedule SE -- Self Employment Taxes
Being self employed does not get a person out of paying employment taxes. Another schedule that a sole proprietor has to fill out is a Schedule SE which then goes on line 57 of Form 1040. This form is used to calculate the self employment tax liability for the business. If there is a profit, tax will be calculated and submitted but if there is a loss, no tax will be payable.
Other Taxes
Many sole proprietor businesses are run by one person, but some may have employees that work for them. If this is the case, then the business is responsible for paying any taxes on the employees earnings including any withholding taxes, federal and state taxes, and paying Social Security and Medicare on the employee's behalf. There are also fees to be submitted for worker's compensation and unemployment taxes.
Goods Taxes
Running a business does not exempt them from paying any type of taxes on goods. If the state has a tax on products or taxable services, the business has to pay these just like anyone else, unless there is an exemption built into the law. If in doubt, contact the local tax office to find out the rules. Depending on the type of business, you may have to collect and remit these taxes yourself as part of the day to day of your business.
As much as people hate taxes, they are a way of life and there is no way to avoid paying them. Talk to an accountant to help decrease your tax liability at tax time or for the future.
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