(Doing 2020 taxes)
I own a sole proprietorship that grossed 470,000. I don't pay myself a salary, just transfer $ to my personal account if I need something. I paid myself 100,000 on paper as a salary, but now I owe $$$ to the IRS.
I am the owner, practice manager, etc.
I want to look good to banks because I want to buy a commercial property and make it into a vet hospital.
How do I enter my pay? Just what I've actually transferred? Do banks care ? A bunch of the gross income is in my checking account, the rest is in the safe.
Also; how do I change the numbers in Turbo. Haven't filed yet. Can I go back and do all the business deductions over? Not having any luck editing my fictitious salary - can't get back to that page.
HELP
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If you are filing a Schedule C for self employment or as a Single Member LLC or Sole Proprietor, etc. you cannot take a withdrawal or salary and include it as an expense on your tax return. 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.
You don't enter your withdraws. Just show the banks your tax return and schedule C. Looks like you have the Desktop Home & Business program. You can go back and jump around and edit anything. Or switch to Forms Mode to look at it.
To edit Schedule C
Go to Business tab- then Continue
Choose Jump to Full List -or I'll choose what I work on
Then…..
Business Income and Expenses - Click the Start or Update button
Then click EDIT by the business name and the next screen should be a list of topics,
Business Profile, Income, Inventory/Cost of Goods Sold, Expenses, Assets, and Final Details last.
Under Business Expenses, Click Start or Update by Other common business expenses
Since a sole prop cannot "pay themselves" wages and issue a W-2 anything left over on the Sch C after the expenses is the profits on which you pay SE taxes. If you do not pay estimated taxes then you will owe on the federal/state returns and if you owe more than $1000 you will also incur penalties.
Some banks will look at the Sch C from your return but other may also want a YTD P&L report so keeping accurate timely records is essential. Many choose to use either an excel spreadsheet or an accounting program like QuickBooks.
Is this your first year? Here is some IRS reading material……
IRS information on Self Employment
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center
1040 Schedule C Instructions
https://www.irs.gov/pub/irs-pdf/i1040sc.pdf
Publication 535 Business Expenses
https://www.irs.gov/pub/irs-pdf/p535.pdf
You pay Self Employment tax on $400 or more of net profit from self-employment in addition to any regular income tax. 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.
Have you been sending in Estimated Payments to cover the tax? If you end up owing too much on your tax return you will owe a penalty for not paying in during the year.
You may need to send in quarterly estimated payments to cover any self employment tax and increase in income.
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).
Turbo Tax will calculate the 1040ES estimated payments
https://ttlc.intuit.com/community/tax-payments/help/can-turbotax-calculate-next-year-s-federal-estim...
How to make the Estimated payments
https://ttlc.intuit.com/community/tax-payments/help/how-do-i-make-estimated-tax-payments/00/25875
Here are the 1040ES instructions and blank forms (where to mail is on page 4)
https://www.irs.gov/pub/irs-pdf/f1040es.pdf
Or you can pay on the IRS website. Be sure to pick 2021 1040ES payment
https://www.irs.gov/payments
This is my mini version of a tutorial that should be in the downloaded program:
Forms Mode lets you view and make changes to your tax forms "behind the scenes."
If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.
Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.
If you want to play around with different figures and tax scenarios without affecting your original return you can ….
It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:
If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.
AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :
AND protect the files :
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