7
References
• Publication 15, (Circular
E), Employer’s Tax
Guide
• Publication 334,
Tax Guide for Small
Businesses
• Publication 505,
Withholding and
Estimated Tax
• Publication 583,
Starting a Business and
Keeping Records
• Publication 596, Earned
Income Credit
• Publication 4591, Small
Business Federal Tax
Responsibilities
• Form 940, Employer’s
Annual Federal
Unemployment Tax
Return
• Form 941, Employer’s
Quarterly Federal Tax
Return
• Form 1040, U.S.
Individual Income Tax
Return
• Schedule C, Profit or
Loss From Business
(Sole Proprietorship)
• Schedule SE, Self-
Employment Tax
JOB LOSS: Starting Your Own Business
Every new phase of life brings many challenges. The Internal Revenue
Service recognizes that the loss of a job can create new tax situations
for you. The following information is provided to clarify possible tax
implications.
Can I be an employee and a business owner in the same tax year?
Yes. Under the tax law, you can be both an employee and a business owner at
the same time if you choose. The primary issue is to report all income on your
return.
Where can I get information about starting my own business?
Publication 334, Tax Guide for Small Business, Publication 583, Starting
a Business and Keeping Records are free publications that have helpful
information for small business owners. In addition, Publication 4591, Small
Business Federal Tax Responsibilities, provides a summary of the reference
material for the business owner. These products contain information on starting
your own business, record keeping, and deductible expenses.
What options do I have for organizing my business?
Under the federal tax code, there are three options: Sole Proprietorship,
Partnership or Corporation. A number of factors may inuence your decision
about which structure is best for you including cost of start-up, exposure to
risk or liability, nancing, and the tax implications.
What record keeping requirements do I have as a Sole Proprietor?
Generally, you should keep detailed records of your income and expenses
for your business to prepare not only required tax returns but also nancial
statements to help in maintaining and growing your business. The same
general rules apply for Partnerships and Corporations with some additional
detail.
How do I report my business income?
As a sole proprietor, you will need to le a Form 1040, Schedule C, Prot or
Loss From Business (Sole Proprietorship) to report your income and eligible
business expenses. You may also be eligible to deduct up to 20 percent of
qualied business income (QBI) from domestic businesses operated as sole
proprietorship regardless of whether you itemize your deductions on Schedule
A or take the standard deduction. Limitations for the QBI deduction may
apply. For more information, please see Publication 334, Tax Guide for Small
Business, and Publication 535, Business Expenses.
What kinds of taxes do I pay as a sole proprietor?
Taxes due on your net self-employment income (total business income minus
expenses) include federal income tax and self-employment (Social Security
and Medicare) taxes and they are reported on Schedule SE, Self-Employment
Tax. Additional information is available in Publication 334, Tax Guide for Small
Businesses. You are responsible for employment taxes if you have employees
working in your business. See Publication 15, (Circular E), Employer’s Tax
Guide, for details.