Category Archives: Income Tax

Help for Filing your Federal Income Taxesfor Your Small Business


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Go To Great Panes, Kathryn Maloney ©2010-2012
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

This time of year many folks seem to have questions about where different business expenses go in your annual income taxes.

Generally, you should get your answers from people in the know–that means directly from the IRS or from an accountant or tax preparer that has experience with small business taxes.

Non-official websites and forums are not a good place to get answers. You’ll never know if the person supplying the info actually has a good understanding of the laws or if they just talk a good game if you don’t go to the source.

In that vein, I offer a few official IRS website links that I have found very helpful. (Links open in a new window or tab depending on your browser settings.)

Do I Need to File a Tax Return? The IRS has tools to help you with that–and if you have to file, you need to report all income, no matter how small or if your business shows a loss/hobby only broke even: Do I Need to File?

Recordkeeping Info from the IRS
http://www.irs.gov/businesses/small/article/0,,id=98575,00.html

For sole proprietorships (info), we report our income and expenses on the Schedule C and submit it with our 1040 to the IRS (and to the state where required).

Form 1040, Schedule C, PDF file
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

This is the IRS’s instructions for the Schedule C:

Instructions for the 1040 Schedule C
http://www.irs.gov/instructions/i1040sc/index.html
(PDF version)

and the following one answers some of the questions for the Schedule C that the instructions for the Schedule C seem to ignore–it has saved me from many a headache:

Tax Guide for Small Business, Publication 334
(For Individuals Who Use Schedule C or C-EZ)
http://www.irs.gov/publications/p334/index.html
(PDF version: http://www.irs.gov/app/vita/globalmedia/p334.pdf)

Now don’t get overwhelmed by all this, these additional links will come in handy if you get stuck….

Some more tough topics in detail:

Business Expenses, Publication 535
http://www.irs.gov/publications/p535/index.html

Inventories—see Publication 538
http://www.irs.gov/publications/p538/index.html

Travel, Entertainment, Gift & Car Expenses, Pub 463
http://www.irs.gov/publications/p463/index.html

How To Depreciate Property, Publication 946
http://www.irs.gov/publications/p946/index.html

Business Use of Your Home, Publication 587
http://www.irs.gov/publications/p587/index.html

This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.


Visit our Etsy shop: GoTo
Go To Great Panes, Kathryn Maloney ©2010-2012

The IRS Website–Links for Businesses

The Internal Revenue Service (IRS) website is great–I ordered all sorts of goodies for new businesses when I started up. (That was before there were so many things available immediately on their website–like pdf versions of booklets and video lessons I had to order on CD.)

Small Business and Self-Employed One-Stop Resource
http://www.irs.gov/businesses/small/index.html

Publications from the IRS
Now viewable online or through the mail with CDs or DVDs
http://www.irs.gov/businesses/small/article/0,,id=101169,00.html

Online Classroom
I had ordered CD versions of these lessons, and though they are as boring as dust, I learned a lot. Now you can click on the name to watch them on-line, click the “d” to download it to your computer or “t” to read the text transcripts.
http://www.irs.gov/businesses/small/article/0,,id=97726,00.html

Taxpayer Identification Number
also referred to as TIN, EIN, or FTIN*, instead some folks just use their SSN

You may not need an Employer Identification Number (EIN) if you won’t have employees, incorporate or be a partnership–you might be able to just use your Social Security Number (SSN) when paying income tax for your sole proprietorship. Check this page to see if you are required to get one:

http://www.irs.gov/businesses/small/article/0,,id=97872,00.html

We got a federal EIN to use during registration for our state sales tax ID. While we didn’t need to get an EIN by the IRS’ standards, we signed up for one with the IRS right away because many wholesale companies won’t let you purchase materials at wholesale without a sales tax ID number. That means you won’t pay sales tax on the supplies you buy and that you’ll have the opportunity to (or requirement of) purchasing supplies in bulk for a discount.

When you get your state sales tax id, often you can give them your SSN as an ID number instead of the EIN, and some states will then use your SSN as your sales tax ID number (some states make you get an EIN before they let you get a state sales tax ID).

I prefer to protect my personal information, so I got the EIN give to the state during registration for our Authority to Collect Sales Tax to be sure my SSN didn’t end up on the license that we must display publicly at craft shows and need to give to wholesalers for a discount/not pay sales tax.

In NY, if you register to collect sales tax your EIN will also be the number for your registration with the state’s sales tax department, giving you the authority to collect sales tax on the state’s behalf. (You must register with the state before you are permitted to collect sales tax even if you already have an EIN.)

Getting an EIN is free, it doesn’t require any special paperwork once you’ve registered, and registering online is easy as pie:

Apply for an Employer Identification Number Online

State Links from the IRS
A collection of links to official US state government web sites with useful information for businesses including information on sales tax laws. Sales tax laws vary from state to state, so it’s important to find your own state’s regulations from official sources.
http://www.irs.gov/businesses/small/article/0,,id=99021,00.html

Sales Tax vs. Income Tax

Go To Great Panes, Kathryn Maloney ©2009

The first thing about taxes and your small business is that sales tax is completely unrelated to your annual state and federal income tax.

Sales tax:

Collected and regulated on a state level, so every state has its own laws that govern the collection and payment of sales tax by sellers to the state. The laws vary widely, please always contact your state directly if you have any questions or get the info directly from your state’s official website. Two examples differences:

  • Some states use the tax rate where the seller is located, some the rate where the buyer is located, and
  • Some states tax shipping while others don’t.

One thing that’s true for all states–if you don’t have a business nexus in a state you don’t have to collect sales tax for that state (nexus = physical presence, like selling from your home or doing a craft show/having a store front, or having a business rep in a state). So you collect from in-state buyers, and out of state buyers will owe “Use Tax” to their own state if the transaction would have been taxable in their state.

If your state has sales tax, you usually need to register with the state to be authorized to collect it from your customers, then you pay the state the money you collected according to the schedule the state provides you, on special forms that are only for sales tax remittance.

Most states require sellers (including hobbyists/individuals, not just “businesses”) to register before they start to sell. Some states do allow you to sell under a certain amount a year before registering, but it’s not common. For example:

  • Texas requires you to register if you sell 2 taxables items in-state within 12 months,
  • Tennessee if you sell less than $400/month and pay tax on your supplies you don’t yet have to register.

See those details here: links to state websites

Some states require sales tax be remitted monthly, some quarterly, some once a year. In some states the schedule changes depending on your sales. Your state will tell you how often you should remit it.

Income tax:

Paid by US citizens/residents and those employed in/selling from the USA at the federal level and at the state level (if the state has income tax). Due April 15.

Some states also have additional taxes for businesses–be sure to check with your state’s taxing authority for your business responsibilities.

For help getting started with what your state requires see this post:

Sales Tax & Business Registration Help
–links to official state websites–

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