Income vs profit in a business

[MQ5]

Is there a difference between reporting income vs profit in a bussines? And how do i properly report them

[VolvoGirl]

Yes.  You report your total income and your expenses on Schedule C which will give you the Net Profit or Loss.

Unless you set it up as a corporation or partnership or LLC S corp you file it as self employment.

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  Here's a Schedule C  https://www.irs.gov/pub/irs-pdf/f1040sc.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/...

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 will need to keep good records.  You may get a 1099NEC at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small and if you don't get the 1099NEC.

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 or 1099NEC 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.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

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

Publication 463 for Travel, Gift & Car expenses

https://www.irs.gov/pub/irs-pdf/p463.pdf

QUARTERLY ESTIMATES

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

[David_EA]

Hello MQ5! I'm an Enrolled Agent with TurboTax Live. 

What are the differences between profit and income?

There are a few key differences between profit and income that are important to understanding when running or managing a business. These differences include:

• Profit is seen when expenses from the revenue are taken out, while income is seen when all expenses incurred by a business are subtracted.
  
  
• Profit refers to the difference between how much money is spent and earned in a given time period, while income represents the actual amount of money earned in a given time period.
  
  
• Profit is used to determine how much cash flow is available versus the company's total costs, while income shows the total amount of money a company can utilize.
  
  
• Profit can be calculated at several points throughout the year to inform a company of its financial strengths and weaknesses. At the same time, income is typically only determined once a year and is the deciding factor as to whether an organization should keep or reinvest its remaining money.
  
  
• Profit is dependent on revenue, while income is dependent on both profit and revenue.