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KEEPING RECORDS FOR INCOME TAX If Your Business is Successful, You Will Eventually Have to File With the IRS.
By Bonnie Drew
As your business grows, and you begin to make profit at a certain level, you will need to file a tax return with the Internal Revenue Service. You'll be required by law to file three tax forms:
- * Form 1040, the two-page U.S. Individual Tax Return
* Schedule C, to report profit (or loss) from business
* Schedule SE, to figure social security taxes due on self-employment income
Because you will be allowed to subtract the standard personal deduction on Form 1040, you probably won't owe as much tax as you might think. That means you would have to make a profit of more than the standard deduction to owe any federal income tax. However, you may still owe a small amount of self-employment tax.
As your income continues to grow, you may be required to pay part of your taxes every few months (four times per year). This is called "estimated tax." Form 1040-ES, Estimated Tax for Individuals, contains the schedule and instructions for filing quarterly income tax reports.
Some states also have a state income tax. It is your responsibility as a business owner to know which tax laws apply to you. It is also very important that you keep good records of your income and expenses, so you can prove that the amounts you show on your tax reports are accurate.
Every year the government prints books that explain changes in the tax laws and tell how to fill out the tax forms. You can get free copies of these books at your post office or public library. If you have additional tax questions, you should consult a professional tax preparer, a CPA, or the Internal Revenue Service.
Bonnie Drew is the author of FAST CASH FOR KIDS (2nd edition), published by Career Press (1-800-227-3371). She is also the creator of the KIDS BUSINESS software for young entrepreneurs, available from Homeland Publications (713-332-9764).
Drew is also Editor of YoungBiz online magazine, published by Kid's Way, Inc., a company that helps youth prepare for business and the workplace of the 21st century. For more information, write to Kid's Way at 5589 Peachtree Rd, Chamblee, GA 30341 or call toll free 1-888-KidsWay (1-888-543-7929). YoungBiz magazine can be found at http://www.youngbiz.com
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