If you have a home based business in which you are the only worker in, there is certain tax info you need to be aware of. First of all, it is good to understand what a sole proprietor. A sole proprietor is a person that has an unincorporated business that they run alone. If you fall into this category there are a few things you should know.
A sole proprietor is liable for income tax, self-employment tax, estimated tax and social security and Medicare taxes and income tax withholding. You are also liable for federal unemployment tax, filing information returns for payments to non-employees and transactions with other people and excise taxes.
Schedule A Form 1040, Itemized Deductions allows you to find out what your itemized deductions are. You federal income tax will usually be less than the larger of your itemized deductions or standard deductions. With Schedule C or C-EZ you are able to report income loss form businesses you owned and operated as a sole proprietor. You can alos report wages and expenses that you incurred as a statuary employee.
With Schedule F Form 1040 you can report profit or loss from farming. The Schedule SE Form 1040 Self-Employment Tax is used to figure out what the tax due on net earnings form self- employment are.
For tax purposes you will need to be able to tell the difference between being self employed and a sole proprietorship. You are categorized as being self employed if you have a trade or business or you are sole proprietor. If you are a member of a partnership or limited liability company that files a Form 1065 you are also considered to be self employed, if you are involved in a trade or business. If you run this business on a part time basis you are still considered self employed.
An independent contractor is someone that performs services for someone else that is not their employer and has no control over what happens to the finished product. There are a number of professions that perform duties for others but are not technically employees. This list includes lawyers, contractors, subcontractors and public stenographers. They are all independent trade people. However, determining if these people are independent contractors or not is based on an individual basis.
After you have determined if you are an independent contractor or self employed, you will need to figure out which taxes you are required to pay. Once you have figured out what category you fall into you are set until something changes for you.
Stay on top of your tax information. Save statements and bills and know what you can and can not deduct. Take a trip to see an account that first year that you are running your home based business and let them direct you on how to file. Once you have picked up the information you need you might be able to handle tax time by yourself. However it may be a good idea to stick with the accountant.
