The unemployment level around the world with COVID-19 has sky-rocketed. There are reports in the media indicating that the job situation isn’t going to improve anytime soon. This has driven many people to look at the possibility of starting their own business.
Lovely to start your own business, but what happens if it doesn’t make revenue? How can your new business survive if it’s not making a profit?
If you earned a profit, you must pay
A sole proprietorship is a simpler, easier way to start a business. The sole proprietor or one-man business is seriously the simplest form of business ownership. One more person joining in, and it is no longer a sole proprietorship.
When you’re a sole proprietor, you have to fill in what is known as Form 1040 Schedule C. If your Schedule C does show that you earned a profit, you will have to pay fees on that amount. In fact, if you earn more than $400 in self-employment income, you need to file a return.
If you haven’t earned revenue from your business, you may still be required to pay taxes. If, for some reason, your income is above the specified threshold, but you haven’t paid the necessary taxes to the government, you may be getting a call from the IRS.
Back taxes can be resolved with the right help
What happens if your business is one of those battling to maintain a positive net profit? Does it need to pay taxes? If you make a profit, the profit is subject to federal income tax and possibly also state income tax depending on the state you are doing business in. There are states such as California that tax businesses whether they make a profit or not.
To prepare your income tax return, a sole proprietorship needs to understand the basic steps about profit or loss and submitting taxes. If, as a business, you’ve got into trouble for not understanding your tax implications, a tax resolution office can help you.
Fortress Tax Relief is highly experienced with back tax issues and your unique case will be personally handled by a licensed attorney. Their knowledge of all the rules with back tax cases means they can solve your tax collection problem.
It’s a good idea to file a return
It’s not all simple as in no revenue, no taxes. Even if you don’t owe the IRS anything, it will still be wise to file a return. If your business hasn’t any revenue, you may still need to pay if you’ve earned income from other sources. So, if you earn income from another job or you’ve got some rental property that you rake in some earnings with, you will need to pay tax.
The IRS tries to make it a little easier for you as a sole proprietor by offering a tool on their website to see if you need to file a return or not. However, even if you aren’t required to file, it can be a good idea, too, because you may well be eligible for a refund.
Keep personal and business separate
If you run your own business, you’re responsible for regular income tax and self-employment taxes. You will need to keep proper records for your business, making sure it is separate from your personal expenses.
Working for an employer means you only pay the employee’s portion of taxes while the employer pays the other half. As a sole proprietor, you’ve got to pay the employer’s- and the employee’s parts. You can take a tax deduction for half of your self-employment taxes.
The IRS always takes a close look at tax returns filed by sole proprietors. This is precisely the reason given above – the line between business and personal expenses is tricky.
Your personal tax and your business tax may be combined, but the IRS wants you to keep distinct business records. The IRS takes an even closer look if your expenses exceed your income, more so if you haven’t turned a profit in recent years.