Updating this posting to add new guidelines and information from the IRS in 2020. You must file a tax return if you have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary. Gig work is any work you perform to earn income, whether through an app or website, rent out property, deliver groceries, or walk a dog.
The federal tax laws that apply to small business owners who are sole proprietors and for statutory employees. A statutory employee is an independent contractor under IRS common law that is treated as an employee, by statute for tax withholdings.
The Schedule C form is used to report taxes annually for your yearly income earned from self employment as a sole-proprietor. A sole proprietorship is any business you operate and control that is not set up as a legal business entity such as a corporation or partnership or a contractor. The Schedule C form calculates the profit (or loss) of the business for annual taxes. A Schedule C form has two general parts: earnings and expenses, which are divided into five sections. Link to Schedule C.
As a business, you are responsible for tracking your revenue and expenses and paying 100 percent of your federal wage taxes, social security and medicare. Revenue is collected from sales and services. Income is derived from gross receipts or sales. Expenses you can write off include: labor costs, equipment, legal or professional fees, office supplies, and utilities. Review the Schedule C form and read Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C).
Before starting a business, even if it is out of your garage. First research how to set up a business, from obtaining a business license to how to pay your federal and state taxes. Different lines of business have their own legal, federal, state and city requirements for operating a business. Ask the experts for advice, or attend workshops from IRS or SCORE. SCORE is a 501 nonprofit organization that provides free business mentoring services to prospective and established small business owners in the United States.
Here is a link on how to manage your taxes.
This is just a start for running your own business. It involves work, planning and hustling. Good luck!