What tax forms do I need for my Sole Proprietorship?

Which tax forms you need to file for your business depends on what type of business “entity” your formed. Here is a link to a post on types of business entities. Your business entity is different from your business type or what your business does. They types of business entities are:

  • Sole Proprietorship
  • Partnership
  • Corporation
  • S-Corporation (The “S” stands for Sub chapter S.)
  • LLC (Limited Liability Corporation)

 

Sole Proprietorship

1040, US Individual Income Tax Return

A sole proprietorship is the simplest form for business entity. For this type, you are the only owner and it doesn’t require you to file any paperwork with the government to get started and you can use the 1040  “US Individual Income Tax Return. All taxpayers must file some version of the 1040 form if they earn enough money. There is a form 1040-EZ and a form 1040-A, but if you have a sole proprietorship you can’t use them.

Schedule C or Schedule C-EZ

Sole Proprietorship small business
Schedule C

The Schedule C (Form 1040), Profit or Loss from Business. You file this form with your 1040. Schedule C-EZ (Form 1040), Net Profit from Business is also filed with your 1040. You must meet certain conditions to use Schedule C-EZ:

  • Had business expenses of $5,000 or less
  • Use the cash method of accounting
  • Did not have an inventory at any time during the year
  • Did not have a net loss from your business
  • Had only one business as either a sole proprietor, qualified joint venture, or statutory employee
  • Had no employees during the year
  • Do not deduct expenses for business use of your home
  • Do not have prior year unallowed passive activity losses from the business
  • Are not required to file Form 4562, Depreciation and Amortization, for this business

Schedule SE (Form 1040), Self Employment Tax

This is the form you use to calculate your tax on your net profit from your business. The Social Security Administration uses the Schedule SE to figure your Social Security Benefits. You pay this tax no matter how old you are and even if you are already getting social security or Medicare benefits. File Schedule SE with your 1040.

1040-ES, Estimated Tax for Individuals

The 1040-ES is the form you use to file your estimated tax payments. Estimated taxes are due Quarterly in April, June, September and January. Paying your estimated taxes quarterly can help you avoid penalties and interest.

941, Employer’s Quarterly Federal Tax Return & 944, Employer’s Annual Federal Tax Return

These forms are only necessary if you have employees. Form 941 is due quarterly in April, July, October, and January. Use Form 941 to report the taxes you withheld from your employee’s paychecks (income taxes, social security taxes and Medicare tax). If your annual withholding taxes are less than $1,000 you can use Form 944. Form 944 is due annually by January 31st. As an Employer you must also pay Social Security tax and Medicare tax on the wages you pay employees. Use these forms to pay those taxes as well.

There is also a form 943, Employer’s Annual Federal Tax Return for Agricultural Employees that farmers use.

940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

Use form 940 to report and pay your Federal Unemployment Tax. Unemployment tax is paid by employers, your employees do not pay unemployment taxes.

W-2, Wage and Tax Statement and W-3, Transmittal of Wage and Tax Statements

W-3 Small Business Employer
Form W-3 Transmittal

If you have employees, you will need to file W-2’s and a W-3. Any one who has had a job and didn’t get paid “under the table” or on a 1099, has received a W-2. The W-2 form is a record of an employees wages and taxes that were withheld for the year and they are due to the employees by January 31st. A W-3 form with copies of all your W-2’s must be filed with the Social Security Administration by January 31st. 

1099 and 1096

When you pay an individual contractor or unincorporated business, more than $600, you are required to file form 1099 and form 1096. The 1099 gets sent to the person you paid and the 1096 gets filed with the IRS. If you decide to file the 1099’s by yourself, do not forget to file the 1096. A lot of people do not know about the 1096 and get in trouble when they don’t file it. I had a client that got audited and because they did not file a 1096 and the IRS took away all their deductions for contracted labor. You are required to give your contractors a copy of the 1099 by January 31st. Form 1096 is due February 28th.

Additional Tax Forms

Depending on your personal situation you may need some additional forms. If you have depreciation expenses you will need form 4562. Depreciation can be complicated and excessive depreciation is also a flag for an audit. If you sell property that you use in your business you will need form 4797. If you have a home office, use form 8828 to deduct expenses for the use of your home in your business.

This is not a complete list of all the forms you may need for every situation. I always recommend that you talk with a CPA if you are unsure about what to file and where. But you should also be as informed as possible before you talk to a tax professional. When you have an good idea of what you need you can explain the issue better and have a better understanding of what your CPA says.



Nathan

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