Tax Obligations for Sole Proprietors
Sole proprietors pay taxes on any income or profits generated by their business. The profits are reported as personal income on the individual’s tax return, and they may be subject to both federal and state taxes depending on the jurisdiction.
Tax Forms for Sole Proprietorship
Tax payments for a sole proprietorship can be tricky because the owner’s income is based on his company’s profit and loss for the year. A sole proprietor will submit a Schedule C with their personal 1040 tax return annually.
Filing Procedures and Responsibilities
Keeping in mind everything we’ve explored thus far, let’s dive into the details regarding the different forms you’ll need to file to fulfill your obligations for sole proprietorship taxes.
- Sole proprietors must pay Social Security and Medicare taxes, and may need to pay quarterly estimated income taxes.
- Sole proprietorships may take expense deductions and tax credits to cut their business tax bills.
- The best way to pay Uncle Sam is to estimate your taxable income and file your sole proprietorship taxes every quarter.
Additional Information
If your sole proprietorship business has no profit or loss during the full year, it’s not necessary to file a tax return for that year.
Single-member LLCs are pass-through entities that report business activity on the owner’s personal return.
Tax Filing and Forms
A sole proprietorship does not need to file any special tax forms with the state or federal government. Generally, the only tax form a sole proprietor will file with the IRS is Schedule C as part of Form 1040.