- 1). Enter all your business data for the year into quick books or another accounting software program and perform an end of the year reconciliation. You may want to consult with an accountant.
- 2). Report all your business activities on IRS form 1040 Schedule C. Schedule C is used to report self-employment income and deduct self-employment expenses.
- 3). Determine your taxable income. As a small business, you are able to deduct business expenses from your gross income. The net income of the business is what you pay taxes on. The data entered into Schedule C to determine your net income should come from your end of the year income statement generated by your accounting software.
- 4). Pay your tax bill. All income reported on a schedule C is taxed at ordinary income tax rates. In addition to paying income taxes, the first $106,800 of income is also subject to a self-employment tax of 15.3%. Self-employment taxes pay into social security, Medicaid, and Medicare.
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