Filing Taxes For A Sole Propietorship

Getting ready to file taxes for your sole proprietorship? Read these quick guidelines before getting started.

Tax forms can seem like they are written in a foreign language if you have to fill them out for the first time. It is common for small business owners to seek tax and accounting counsel from certified public accountants (CPAs), but for an overview of what you can expect when filing taxes for your sole proprietorship, read these guidelines.

Sole proprietors and single-owner incorporated businesses can file their business taxes on the same form as their personal taxes. Download form 1040 from the IRS website.

The important section for you to fill out in regards to your business is included in lines 7-22, where you will have to report your wages, taxable interest, dividends, credits, refunds, capital gains or losses, and business income or loss.



In addition to filling out this section, you will most likely have to attach additional materials and forms, also found on the IRS website. For example, if you hired contracted employees, you will have to file a 1099-R or a W-2G for each project if you withheld taxes. Any income that you received should be itemized on a W-2 form. You will also most likely have to attach a schedule C or C-EZ to report your business income or losses.

Schedule C of your 1040 is the most important of all of your attached forms. On this schedule, you will report not only your income, but also your expenses. Each expense is itemized in Part II. You will have a section for advertising, car and truck expenses, commissions and fees, asset depreciation, employee benefit programs (if applicable), supplies, repairs, business property, travel, utilities and rent. It is important that for each of these items you are able to provide proof of the service or purchase. In the event that you are audited, your auditor will want to see evidence that your travel was related to business, for example- so keep and categorize all receipts and additional materials collected pertaining to your finances.

If your business is run from your home, you will have to fill out form 8829 when you file your Schedule C. On this form, you will have to define what part of your home is used for your business, including the total area of the home and business percentage. You will have to figure your allowable deduction, including your mortgage interest and operating expenses. You will also have to factor in the depreciation of your home in the fair market value schedule.

You may have to fill out a form 4562 taxes specific to your state. For example, in Virginia, home business owners must fill out this form called "Virginia State Depreciation and Amortization" in conjunction with the form 8829. Consult your local government for rules and regulations of a home-based business.

It is always a good idea to hire an accountant to help you through the first year of your business. Accountants can help you not only determine which expenses are allowable, but they can work with your figures to get you the best tax return possible for your organization. A small business owner can expect to pay between $200 and $500 for an accountant to file his or her tax returns.

However, with a little study and a lot of patience, any small business owner can figure out the tax forms fairly comprehensively. Just remember: Save all receipts!

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