- I started a photography side business this year and plan to do sole proprietorship, what are the steps to file that way?
Your sole proprietor business will enter your revenue and expenses on Schedule C and the profit on that Schedule C will flow onto your Form 1040.
I recommend the following steps to stay on top of your tax obligations:
- Set a time each month for your "Board Meeting"
For example, third Sunday of the month 4 PM to 5:30 PM
Keep track of your revenue and expenses in a file folder
The major miss for self-employed taxpayers is failure to track expenses
At the end of each month, total up your profit
If your W-2 job does not take you to the 2023 Social Security maximum of $160,200, you will owe 15.3% self employment tax on the profit
You will also owe income tax on the profit, most likely at your Marginal Tax Rate
You can locate your Marginal Tax Rate at the bottom of your 2022 Tax History Report in TurboTax
So if you are in a 12% marginal tax bracket, you add 12% plus 15.3% and deposit 27.3% of your profit in accordance with IRS "When to Pay Estimated Tax":
January 1 through March 31 period, make deposit on April 15
April 1 through May 31 period, make deposit June 15
June 1 through August 31, make deposit September 15
September 1 through December 31, make deposit January 15
Here are a few steps to consider (some but not all)
1)Get IRS EIN Number
2)Check on city and state licensing requirements
3)Determine business liability and the need for protection of an LLC
4)Consider business insurance
5)Open business bank account
6)Deposit all business income and pay all business expenses through business account
7)Perform monthly bookkeeping. Our sister company Quickbooks has great software.
8)From bookkeeping prepare year end income statement
9)From year end income statement report 2023 income and expenses on Schedule C of your tax return.
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You will need to keep good records. You may get a 1099NEC or 1099K 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. You might want to use Quicken or QuickBooks to keep track of your income and expenses.
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed return....
When you are self employed you are in business for yourself and the person or company that pays you is your customer or client.
To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax. You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.
Turbo Tax Beginners Tax Guide for the Self Employed
What is form 1099NEC?
Here is some IRS reading material……
IRS information on Self Employment
Publication 334, Tax Guide for Small Business
Publication 535 Business Expenses
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.
You may need to send in quarterly estimated payments. 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.)
Here are the blank Estimates and instructions…..
Or you can pay on the IRS website. Be sure to pick 2023 1040ES payment
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