Write-off Business Expenses for Unregistered Business

[SD1]

I started a side business last year fixing computers, networks, devices, etc. My clients are 100% through word-of-mouth. I do not have a website or business cards. All business transactions are cash.

The business is not my primary source of income, I have a W2 from my job for that. However, the business has been giving me some extra cash. The business is not registered as an LLC or anything else making it a 'legitimate' business. It's just something I do on the side.

I wanted to claim the income on my taxes, and also write-off expenses. Will it be a problem to claim the income and write-off the expenses considering I have no 'legal' documentation proving the nature of the work.

[IreneS · Accepted solution]

No - that's not a problem. Many sole-proprietorships don't have a formal structure (like an LLC, partnership or S-Corp).

In order to report the income and expenses for your side business you will need to use TurboTax Self-Employed (online) or one of the TurboTax CD/Download products.

[SD1]

Thank you Irene. I had one quick follow up question. I plan to hopefully grow this business and am investing in some more tools for the work. I am hoping this is not the case but in the event my expenses are more than my income and I have to report losses, is that acceptable considering it's not a registered business? I read a lot of statements in the publications like "Tools must be necessary and related to the trade" ... and I am concerned it's an issue if I am unable to prove the trade.

[IreneS]

That is not a problem.  Good luck in your business!

[investigate5]

what name will the selfemployed company be

[Francinadm]

So I would have to fill out my regular taxes from my full time position and separate taxes for the unregistered business?

[Critter]

No...it all goes on one tax return.   The self employment goes on a Sch C that is part of your personal tax return. 

[VolvoGirl]

For sole proprietor, freelance, self employment, Single Member LLC (not a S corp)......

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You need to report all your income even if you don't get a 1099Misc. You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on Schedule 1 line 27.  The SE tax is already included in your tax due or reduced your refund.  It is on the Schedule 4 line 57.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf