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Do I have to pay tax on my sole proprietorship income?
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| A sole proprietorship is the simplest form of business organization. The sole proprietorship
has
no existence apart from the owner. The sole proprietorship assets are the owner's personal assets,
and the sole proprietorship liabilities are the owner's personal liabilities, and the sole proprietorship ends when
the owner dies. You
do not have to carry on a regular full-time business to be a sole
proprietorship. Part-time work, such as a side line business in addition to your regular job,
may be a sole proprietorship.
A sole proprietor files Form 1040, Schedule
C, or in some cases,
Form 1040, Schedule
C-EZ, to figure the profit or loss from the sole proprietorship, and
Form 1040, Schedule SE, to figure
self employment tax.
You can use Form
1040, Schedule C-EZ to determine your net profit from the sole proprietorship
if you meet all of the following
requirements:
 | you had only one sole proprietorship; |
| your sole proprietorship
expenses were $2,500 or less; |
| you use the cash method of
accounting for your sole proprietorship; |
| you did not have an inventory
in your sole proprietorship during the
tax year; |
| you did not have a net loss from your sole proprietorship; |
and:
| the sole proprietorship
had no employees during the
tax year; |
| the sole proprietorship
is not required to file Form
4562 to claim depreciation and amortization; |
| the sole proprietorship
does not deduct expenses for the business use of your
home on your tax return; |
| you do not have prior
tax year unallowed passive activity losses from this sole proprietorship. |
If all of the above do not apply then you
must file Form 1040, Schedule C. If you own more than one sole proprietorship
you must
prepare a separate Form 1040, Schedule C for each sole proprietorship.
If you earn or receive
taxable income during the tax year that is not subject to tax withholding, or if
you do not have enough income tax withheld, you may have to pay estimated tax.
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Related tax
information about a sole proprietorship |
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Is income from a part time business taxable?
Self Employment Tax
Is the income of an independent contractor
taxable?
Employee or independent contractor?
Is income from my hobby taxable?
Are hobby losses tax deductible?
Home Office Tax Deductions
Is partnership income taxable?
Income Related Questions and Answers |
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IRS publications about a sole proprietorship:
For additional tax information about a sole proprietorship refer to
IRS Publication 533, Self-Employment
Tax, and
IRS Publication 334, Tax
Guide for Small Business. Also see
IRS Publication 17, Your Federal
Income Tax. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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