Do I have to pay tax on my sole proprietorship income?

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.

Related tax information about a sole proprietorship

Tax Directory Topics:
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

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. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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