sole proprietorship and Schedule C

[kathyminer7941]

I have a sole proprietorship and am filing a 1040 with a schedule C for my business.  I paid my subcontractors with 1099's but took my compensation as "draws"  I can't figure out how to report that as income on my 1040, or do I just add that income to the 1099's on the schedule C or what?????

[VolvoGirl]

You cannot deduct your own salary or any personal withdrawals you make from your business. As a sole proprietor, you are not an employee of the business.

Sole proprietors cannot take a withdrawal or salary and include it as an expense on their tax return. As a sole proprietor, you are not an employee of the business. You don't pay yourself or enter a salary or withdrawal for yourself. All the business income and expenses are your personal income and expenses in the first place. You just fill out a Schedule C. The net profit or loss is your income.  If you have a net profit of $400 or more on schedule C you will pay SE self employment tax on it in addition to your regular income tax. It's all included on your personal 1040 form.  

(And if you paid yourself and deducted it as an expense then you would have to include it as income on the same tax return so it would be a wash.)

See Schedule C instructions page 9 for Line 26…Do not include….amounts paid to yourself

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

[VolvoGirl]

You were asking about your income.  In case you missed it buried above your Business is a disregarded entity and your personal income is just the Net Profit or Loss on Schedule C.  So when you take a draw or cash it's just a sideways move from the business bank account to your personal account.  Just moving money from your right pocket to your left pocket.   Doesn't go on your tax return.  It's all yours in the first place.

[VolvoGirl]

Which program are you using?  It shows Turbo Tax Business.  You can not use that for a sole proprietor schedule C.  You need to use Home & Business program.  Or actually any of the Desktop personal programs.  All the Desktop programs have the same forms. You just get more help and guidance in the higher versions. 

But TT Business is for 1120 Corporation, 1120S Corp, 1065 Partnership or 1041 Estate/Trust returns. Not for self employed independent contractors using Schedule C.

Schedule C is part of your personal 1040 tax return.

[VolvoGirl]

Back again with some more info for you.  Since you sound new to being self employed.....

You need to report all your income you receive from customers and clients (not that you pay to yourself)  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

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version.  How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...