How to Know You Are Ready to Report Your Business Income
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.
ABOUT THE AUTHOR
Hi, my name is Amy Northard and I’m the CPA for creatives. I help creatives like you all over the US navigate taxes and set up bookkeeping systems so they can get back to the part of business they love – the creative part.
Amy Northard, CPA - The Accountant for Creatives
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