If you’re a sole proprietor who’s in denial about the upcoming tax deadline, we’ve got a procrastinator’s guide for you.
Here you’ll find explanations of the most-used sole proprietor tax forms.
None of this information is meant as a substitute for the advice of a tax professional. But if you’re determined to prepare and file your own business tax forms, this article will help you get started.
File Schedule C or Schedule C-EZ
File Schedule C or Schedule C-EZ to report the profit or loss from your business. The schedule you use is filed with your individual Form 1040.
If you operate only one business, you may be able to file the simpler, more condensed Schedule C-EZ. To use this form, your business expenses for 2004 must be less than $5,000.
Other rules also apply. If you operate multiple, unrelated businesses, you must file a separate Schedule C for each business. Also, if any of these situations apply to your business, you must file the longer Schedule C:
Have an employee
Claim business use of your home
Report a loss
Depreciate business property
Have inventory during the tax year
Have carry over passive activity losses from a previous year
Report business expenses of $5,000 or more
Take The Home Office Deduction
If you maintain a home office, taking the legitimate deduction on Schedule C can save you money on taxes.
To claim the deduction, the IRS says that your home office must be used “regularly” and “exclusively” for business.
Meeting the exclusivity test is the toughest. If your kids use the office area to play computer games, you don’t pass the exclusivity test. If your office is a spare bedroom where guests sometimes stay, you don’t pass the test.
If you pass the exclusivity test, you must still meet one of these qualifications before you can take the home office deduction:
It must be your principle place of business, or
It must be a place where you meet with customers in the regular course of doing business, or
It is a separate structure, not attached to your home, that you use exclusively for your business
If you operate a day-care facility in your home, there are exceptions to these rules. For more information, see IRS Publication 587, Business Use Of Your Home (Including Use By Day-Care Providers).
File Schedule SE
If you had $400 or more in earnings from self-employment, you must pay self-employment taxes.
To report your self-employment earnings, use Schedule SE. You only need to file a single Schedule SE even if you file more than one Schedule C or Schedule C-EZ.
Pay Estimated Taxes
Sole proprietors must make estimated tax payments every quarter. Your first payment for 2005 is due April 15, 2005.
Your estimated payments for the year must equal 100 percent of your previous year’s tax or 90 percent of your current year’s expected taxes, whichever is less.
Here are the deadlines for filing your 2005 estimated taxes:
April 15, 2005
June 15, 2005
Sept. 15, 2005
Jan. 15, 2006
The easiest way to pay your estimated taxes is online. You simply enroll in the free Electronic Federal Tax Payment System (EFTPS) at www.eftps.com. After you’ve enrolled, you go to the Web site each quarter to pay your taxes.
You can also use the paper-based Form 1040-ES voucher to make your estimated tax payments. Find out about this form at www.irs.gov.
Get An Extension
April 15, 2005, is the deadline for filing your 2004 business tax return. If you can’t meet that deadline, you can get an extension.
File Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This extension is due by April 15. Along with the form, you must pay any tax that you expect to owe. If you don’t pay your anticipated taxes by April 15, you could be subject to a late filing penalty and interest charges. When you file form 4868, your new deadline for filing your tax return is Aug. 15, 2005.
If August rolls around, and you still don’t have your tax return prepared, you can get another extension. File Form 2688 no later than Aug. 15. Your new tax filing deadline will be Oct. 15, 2005.
(Posted March 2005)
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