If you work from home and own a home business, it's very important to know which tax forms you'll need to fill out in April. Since there's no secretary to tell you which tax documents you should complete, you need to know which ones to get for yourself to avoid penalties from the IRS. This guide will take you through the list of the home business tax forms you need to get your taxes squared away.
IRS Form 1040
If you've ever filed your taxes before, you're probably reasonably familiar with the IRS Form 1040. The 1040 form is the basic tax form for filing personal Federal income tax returns. The first page of this form is basic information about yourself, including any dependents and applicable income adjustments. The second page is mainly calculations to determine the amount of your tax return. The 1040 form also contains 11 different attachments. 2 of them, Schedule C and Schedule SE, are required for self employed entities.
Schedule C is required for sole proprietors and covers the income earned and expenses paid through your self employment; any profit or loss which your business produced is recorded in Schedule C. Schedule C is also where you list your home business expenses as tax deductible, so it's important to record your detailed expenses throughout the year for maximum returns.
SE stands for Self Employed, and it is required for everyone who has earned income through self employment. It is similar to the Schedule C, but involves calculations based on your expenses and other factors (rather than supplying the base information about them). By the time your Schedule SE is complete, it will have the IRS calculated tax due and the tax due after applying a 50 percent deduction.
The 1099-MISC form may or may not be required depending on the type of income your at home business makes and the type of employment if any. If your business has earned money by supplying freelance work, and you utilize the services of freelancers (where you and the freelancers working under you have been paid on a per job basis), you will need to file a 1099 form on behalf of the monies paid to your freelancers. The 1099 is used to report income that was not earned as a wage, salary or tip, meaning that if you have assigned pay per job work and paid out more than 600 dollars to any individual in a year, you'll need to complete a 1099 for each person.
Properly completed, these 2 tax forms, and 2 subsets of the IRS form 1040, should ensure your business stays out of trouble with the IRS. For maximum tax returns, it is important to thoroughly document expenses throughout the year. This will make the entire process as convenient and complete as possible.