sole proprietor, new business, just starting fulltime (aug- sept'23)- What do i need to do about taxes?

[SmallBiz]

Hi,

I am just starting a new business (fulltime), its a sole proprietorship (not llc). Selling online in marketplaces like amazon/ebay etc and own website. Sales are just about starting now but i do not expect anything significant before october. This will be my full-time activity going forward, I will not be returning to a regular job (last worked in May 2023).

1. when should i start filing quarterly taxes? There are no sales to report. and iam in Michigan, with a valid sales tax number required to start collecting tax starting sept 15th 2023. The marketplaces (amazon/ebay are collecting and reporting sales & use tax on my behalf) and my own website is collecting sales tax for sales occurring in Michigan only, NO sales or use tax is being collected for sales to other states as iam below the nexus threshold.

2. What tax form is to be filed and Is quarterly online filing free via TurboTax or is there a package which includes quarterly and annual tax filing?

3. What options do i have in terms of what expenses / income, deductions are to be taken in the annual tax filing vs quarterly filings? Iam currently keeping track of all my expenses via Zoho expenses & books software. and planning to use using Turbo tax (your assisted filing) for the annual filing. 

4.  Is sales tax filing for sole proprietorship different from self-employment income tax filing? 

5. Any other important things i should keep in mind as i try to make this simple and fool proof for tax purposes.  

Please let me know if any clarifications are required about my specific situation.

Thanks,

[MarthaT · Accepted solution]

Hello and thank you for your questions.  Congratulations on your new business. 

1.  You can start filing quartely taxes as soon as you make more than $1000.  Make sure you do  not confuse the Quarterly sales tax and the Quarterly Self-employment taxes.  The sales tax is for products you sell and charge sales taxes to the customer and report it to the state quarterly.  The self-employment taxes are for the net income you generate and it is a federal income tax.  Meaning your income minus expenses from your sole proprietorship business.  

2. The tax form you need to file for the quarterly self-emplyment taxes is form 1040ES but you can make payments on line at https://www.irs.gov/payments.  Regarding your Quarterly Sales Taxes you need to call your state or go to the state website for more information.

3.  For your self-employment expenses is any expense that is ordinary and necessary for the operation of your business.  The income is any income you generate from the sale or service of your business.  You can find more information on business expenses at https://ttlc.intuit.com/community/self-employed/help/what-can-i-write-off-as-a-business-expense/00/2...

4.  Yes, Sales tax filing is different than self-employment income tax filing.  As I mentioned, the Sales tax filing is reported to the States quarterly and the Self-employment income tax is reported to the IRS quarterly.  Both filings are necessary for your Sole-proprietorship business.

5.  Yes, keep in touch and continue using Turbo Tax since it is a very friendly software that educate you in many aspects.  You can find more information at:

        Publication 535 Business expenses at  https://www.irs.gov/pub/irs-pdf/p535.pdf

        Taking Business Tax Deductions https://turbotax.intuit.com/tax-tips/small-business-taxes/taking-business-tax-deductions/L5RueYPVS

        A Tax Guide for Solepreneurs: Self-Employed Tax Tips - https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-tax-guide-for-solopreneurs-self-employe...

Thanks for your question

[LRay_EA · Accepted solution]

Hi SmallBiz, 

When you file your annual tax return for 2023 you will include a schedule C with your return. This is where you will report all income and expenses (total by category) for your business. Our TurboTax Premium Online or Home and Business for desktop will help you tackle your annual tax filing including self employment taxes. TurboTax is not used to file sales tax but is used to prepare quarterly estimated taxes should you need to pay them in 2024. Your annual tax filing will include your portion and the employer potion of social security and Medicare taxes which is called Self Employment Tax. It will also calculate your federal and state tax liabilities owed from your self employed net income. Since you started your business this last month you could make an estimated tax payment by September 15 (for income earned in August), then January 15, 2024 (for income earned through Sept - Dec 2023) depending on your net income for the business. Federal estimated taxes are paid on a form 1040ES and Michigan forms are MI-1040ES. 

[SmallBiz]

Excellent explanation! Thank you for making this easy for me 🙂

[SmallBiz]

Your detailed reply is much appreciated. It removed several doubts and apprehensions. Thank you very much!