Understanding DBA and Taxes
A DBA, or "Doing Business As," is an alternative name for a business and does not necessitate the creation of a new legal entity. The profits earned through a DBA are subject to income tax, and taxes are typically paid on a quarterly basis. DBAs contribute to the professional image of a business but do not provide financial benefits or change tax obligations. The underlying business entity—be it an LLC, a corporation, or another form—determines the tax responsibilities.
Tax Implications and Reporting
Any business type, from sole proprietorships to corporations, can use a DBA. The tax repercussions vary based on the business structure.
Sole Proprietorships and Single-Member LLCs
For sole proprietors and single-member LLCs, the DBA income is reported on Schedule C of the individual’s Form 1040. If you’re a sole proprietor, you can deposit checks made out to the DBA into your personal bank account. A DBA facilitates the demarcation of personal and business finances, which can be beneficial for tax purposes.
LLCs, Corporations, and Partnerships
LLCs and other entities that choose a DBA must abide by state regulations. Generally, an LLC’s taxes are passed through to the owners unless it opts to be taxed as a corporation. A corporation or partnership must obtain an employer identification number (EIN) from the IRS, regardless of whether it operates under a DBA. An EIN is also necessary if your business engages in activities such as hiring employees.
Compliance and Paperwork
Filing for a DBA involves completing the necessary paperwork and paying fees ranging from $10 to $100. This process is conducted with the county clerk or relevant state department. Some states mandate the publication of a notice in a local newspaper.
Tax Reporting Requirements
- Payments over $600 made for services, as well as sales exceeding $5,000 for products intended for resale, must be reported to the IRS.
- Applicable forms must be filed with the IRS and provided to the recipients of payments.
Annual Filing Obligations
Regardless of whether income surpasses $499, sole proprietors are required to file annual tax returns. Similarly, partnerships, LLCs, and corporations are obligated to file annual returns and may also need to make quarterly tax payments.