One of the questions we get asked all the time (and one that was heavy on our minds when we first started) is how do you know when you should start reporting your business income? Well, since we’re big believers in treating your business like a business, we wanted to bring Amy Northard, the accountant for creatives, on to explain all about reporting your business income!
Taxes are probably the last thing on your mind when starting your creative business, and that’s totally understandable. But do yourself a favor and set aside a few minutes to learn when you need to start reporting your business income and expenses on your tax return. You’ll thank yourself later!
Start Right Away
The first year you accept money from a client or sell a product to a customer, the IRS wants to know about it when you file your annual income taxes. If you’re a sole proprietor or single-owner LLC, you’ll report the income and expenses on a Schedule C form.
If you have a partnership or S-corporation, you’ll report the income and expenses on a completely separate tax return. For our purposes, we’ll focus on sole proprietors and single-owner LLCs.
Don’t Believe the Myth
Along with the Schedule C form, if your business has made a profit (income minus expenses) of $400 or more, you’ll need to file a Schedule SE form. This is the form that the IRS uses to calculate your self-employment tax of 15.3%. If you use a tax software for your taxes, the form will compute automatically.
There’s a myth that if you receive less than $600 from a client, you don’t need to report the income on your taxes. Don’t believe this myth. The IRS wants you to report all income, even if you didn’t receive a 1099 form from the client.
The bottom line is that if you receive money through your business, the IRS wants to know about it when you file your taxes.
5 Steps to Profitability
We know it can be overwhelming with everything that’s on your plate right now. We know you’re being pulled in every direction trying to decide which area of your business to focus on. You’re wearing all the hats right now. We want to help simplify and give you some strategies to move your business forward no matter where you are at in the process.
Download this free guide to get your business making mula faster! It’s just 5 simple steps. Are you ready?