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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3346
Experience:  15+ years tax preparation and tax advice.
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How will starting a small business effect my personal tax return

Resolved Question:

How will starting a small business effect my personal tax return if I used to file jontly. I was a homemaker with no income, and so far, my business is not making profit yet. What is the chance that I will owe taxes or loose my normal refund.
Submitted: 8 years ago.
Category: Tax
Expert:  Wendy Reed replied 8 years ago.

Hello there, this is a very good question.


If you normally file jointly, then in short, a business loss (if your expenses are more than your business income) will increase your refund, and a net profit will decrease your refund.


On any net profit, you will be paying ordinary income tax rates for federal and state, plus you will pay 15.3% self-employment tax.


A lot of people start a home business or "side business" and then give up when they realize how much they have to pay in taxes----however, additional income is almost always better than none at all.


If you have a net profit, you may wish to prepare your state and federal returns both separately and jointly, to see which yields the lowest tax liability. However, it is generally better to file married joinlty.


I am linking you to some information from the IRS for self-employed persons:


Here you will find information about legitimate business expenses, estimated tax payments, filing requirement, etc. It is a goldmine of information that every self-employed person should use as a reference.


Please let me know if you need any clarification.

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