Basic tax facts for sole-proprietor small businesses
Posted in: Legal
Q: I am a very small independent photographer who made $1,500 over the past year. How do I pay taxes on that?
A: You could be considered self-employed as a sole proprietor. You could claim the income on Schedule C when you file your personal tax return. Any expenses associated with this income would also be included on Schedule C, and your tax liability on the business will be based upon the net income.
For example, if you made $1,500 in profits, you would pay tax on that amount. However, you may have deductions that would reduce the amount or result in your paying less or zero taxes.
For the business, expenses could include items such as subscriptions or books for photography, film, editing software, membership dues, office supplies, office rent, business telephone, etc.
As a sole proprietor, you do not need a tax ID. On Schedule C you will operate using your Social Security number. You will definitely want to save receipts, as these are your evidence to the IRS (should you ever be audited) that you actually incurred these expenses.
Also, if you use a tax software program like TurboTax it will walk you through where to input your income and expenses by category.
-- Answer from Shane CPA, an accountant on JustAnswer.
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