Whether your micro-entrepreneurial business is operating under your name, a sole proprietorship (DBA), or LLC, you report your business activities (income, expenses, and the net gain/loss) on Schedule C, which you then attach to your personal Form 1040 for that tax year. (Taxpayers who need to file a Schedule C must use the long Form 1040.)
If you’re unable to meet the April 15 deadline, you can file an extension (file Form 4868 by April 15) to get an additional six months of time to prepare and send your taxes (the extended deadline would be October 15).
On Schedule C, you generally report the following:
Your income
Your business expenses
The net income (or loss)
The net income (or loss) number carries over to page 1 of Form 1040. You combine that amount with any other net income (or loss) listed on your 1040, such as employee W-2 income, interest, dividends, and so on.
If you report a business net loss on your Schedule C, that loss isn’t taxable on the federal level, and it would ultimately lower your total income and subsequently lower your taxes.
The amount you paid during the year in tax payments (or payroll tax withholding amounts) would either mean a lower tax or a greater refund. Your tax professional can help you figure out the specifics.
As the year progresses and you see that you’ll have a profit, check to see whether you need to make estimated payments of your federal and state taxes. If, for example, you see that your total federal taxes will be $4,000 for the year and your state taxes will be $600, then you may need to send in quarterly amounts during the course of the tax year.
For the federal taxes (in this example, $4,000), you may need to send in four payments of $1,000 during the four estimated tax payment dates (usually April 15, July 15, October 15, and January 15, which is about two weeks after the end of the tax year). For the state taxes, you may need to send in $150 four times and typically on the same dates.
For more details on estimated taxes, see the IRS form 1040-ES and also consult with your tax professional (the earlier the better, so you can estimate and plan your payment amounts properly).
In addition to Form 1040 and Schedule C, you may need to include one or more of these other forms with your 1040, depending on what happened in your business:
Schedule SE: In the event that you have net business income, you may need to submit Social Security taxes. This form reports that tax; the amount due would need to be paid with your Form 1040.
Form 8829: If you run a home-based business and you have legitimate home business expenses, you can report them on this form. The total amount then carries over to Schedule C and is included with your tax return.
Form 4562: If you have claimed any depreciation (and/or amortization; check with your tax professional), then include this form. The net amount you’re taking for that particular year carries over to Schedule C, and the form is included with your tax return.
You may need other forms, depending on your tax situation. Review Form 1040 and Schedule C to see whether you need any other forms, based on a particular line item.
To get professional assistance in preparing your taxes without the higher fees of a CPA, consider using an enrolled agent. An enrolled agent (EA) is a federally licensed tax practitioner who specializes in taxes and has the right to represent taxpayers before the IRS.
Here are some IRS tax resources that can help you that you can easily download:
Publication 17: It gives you a nice overview of Form 1040 and includes references to Schedule C as well.
Publication 334: It’s the IRS small business tax guide.
Publication 583: This publication is for taxpayers starting a business. It also includes information on record-keeping and getting a Tax ID number.
Publication 587: It guides you in how to set up your home office and how to take the home office deduction. It also includes information on Form 8829.
Publication 463: It helps you understand travel and entertainment deductions as well as auto expenses and business gifts.
Publication 535: It covers the general world of business expenses.
Publication 946: This publication is all about depreciation and amortization.