Sole Prop Taxes

[AniTar1]

I have a sole proprietorship and am confused about tax filing. From my understanding, with an SP you do not need to file separate federal taxes. Instead, you would include your income in your personal taxes. However, I live in California. Do I still need to file City and State business taxes? My income from my SP has been around $3,000/year. 

[Laura_CPA]

Hi AniTar1, 

Happy to help! You are correct with an SP you file it under Schedule C along with your 1040 (personal tax return), it doesn't require a separate business filing. 

If you created a Limited Liability Company (LLC), you would be required to file Form 568 Limited Liability Company annual return. Otherwise, you just need to file your federal and state tax returns. 

Hope this helps,

Laura 

[AniTar1]

Thank you! Is this true even if I have an EIN? I get notices from the city saying that I may lose my Seller's Permit if I don't file my business taxes. However, what I'm hearing is that if I have a Sole Proprietorship, I don't need to file City/County business taxes. I would only need to include the income from my SP on my Federal Taxes. Is this correct?

[BellaAmar]

Just to clarify, but if it's a single owner LLC, then don't file the Form 568, right?

[Laura_CPA]

Thank you for the additional information. If you have a Seller's permit, you do have a Sales and Use Tax filing requirement. This is an additional filing with the California Department of Tax and Fee Administration (please check out their website: https://www.cdtfa.ca.gov/services/#File-a-Return). In which County are you located? 

[Laura_CPA]

@BellaAmar if you are a single member in an LLC, you have to file Form 568 in California. 

[AniTar1]

That's helpful, thank you. I'm in Los Angeles County.

[Laura_CPA]

Glad to help @AniTar1 , thank you as well for the information. There's a Los Angeles City Business Tax as well, here's how it works:  LACBT and this is the link to file the return: Annual Business Tax Return E-Filing (please listen to the video before you start e-filing the return). Also, here's how the Form looks like for your review: LACBT Form  

To summarize you have to file the following based on your business location:

• Federal Tax Return, Form 1040 (including Schedule C)
• Form 540 California Tax Return (filed with your 1040) 
• Sales and Use Tax (separately filed from your 1040/540 tax returns)
• Los Angeles City Business Tax Return (separately filed from your 1040/540 tax returns)

Hope this helps you, 

Laura 

[AniTar1]

This was incredibly helpful! Can you please breakdown what a Gross Receipt is? Is it the same as Gross Income? 

When filing, is it asking that I include my total gross income from my sole proprietorship or is there a different meaning to Gross Receipt?

[AniTar1]

I know there are various filing dates for each of the taxes you mentioned. Can you please break down the deadlines for filing as well? Thanks in advance!

[Laura_CPA]

@AniTar1 according to the Franchise Tax Board, Gross income is gross receipts minus returns and allowances, minus costs of goods sold. Goss receipts is all revenue that your business received during a given year from sales (FTB). 

[AniTar1]

@Laura_CPA For clarity, so for example, if I made $1000 from my business but it cost me $300 to make the goods that I sold, then the Gross Receipt that I would report is $700. Is that correct?

[Laura_CPA]

@AniTar1 definitely! 1040/540 are typically due on April 15th (currently for 2022, the deadline is October 16th if you lived in a disaster declared area due to the storms). The deadline for the LACBT is February 28, 2023 (you might have to see if they will penalize you for filing late) and the deadline for the the CDTEF varies on quarterly, monthly or annual (see link CDTEF) 

Cheers,

Laura 

[Laura_CPA]

@AniTar1 definitely an example works best, here it is: 

• Gross income would be $1,000 - $300 = $700. 
• Gross receipts would be $1,000.

Cheers, 

Laura 

[AniTar1]

So glad I double checked! Thank you for all your help, this has been great!