Have you recently started your own business, but haven’t registered it as an LLC? Don’t worry. Not all businesses have to be formally registered as their own legal entity. In fact, many self-employed people and small business owners still write off their business expenses without registering as an LLC—you just need to know how. Read on to learn more about filing as a sole proprietor and how you can still write off your business expenses.
What is a Sole Proprietor?
A “sole proprietor” is simply someone who works for themselves and hasn’t registered their business as its own legal entity. It’s the default classification given to unregistered businesses. This means that if you don't register your business with the state, then by default it will be considered a sole proprietorship. As such, you don't have to file anything special in order to begin operating after acquiring your normal business licenses and permits. Sole proprietors are taxed the same way as single-member LLCs: through self-employment taxes.
How Sole Proprietors Can Write Off Business Expenses
To write off your business expenses, you’ll use the Schedule C form, which is included with the 1040 tax return form when filing your taxes each year. This form is used to calculate profits earned from self-employment activities or from running a small side-business or hobbyist gig like tutoring or selling products online. You’ll use your Schedule C to figure out your net income, which is calculated by subtracting all of your allowable expenses from total revenue/income received throughout the year.
When calculating net income on the Schedule C form, there are three categories of deductible expenses that you can include in this calculation: direct costs, indirect costs, and other miscellaneous deductions related to running a business (e.,g., home office equipment). Direct costs are those that directly relate to creating or producing goods or services for sale (like raw materials or supplies). Indirect costs are those necessary for keeping up day-to-day operations (like rent payments for office space or advertising fees). Lastly, other deductions also apply (like travel expenses related to attending trade shows). All of these categories should be taken into consideration when calculating net income on the Schedule C form so that you can maximize deductions and minimize taxable income at year end!
All in all, do not let the fear of filing your taxes stop you from taking advantage of every deduction that you are due. There are so many tools available to make the entire process smoother. Remember, if it still feels overwhelming—our team here at Supreme Financial Group is here for you! We have dedicated accountants that specialize in helping individuals and businesses prepare their taxes quickly and efficiently. Once taxes are filed we can also help get you set up on an LLC formation with ease! Click the link below to sign up for your FREE Tax Estimate Today, and start making more money before tax season is done. Let's maximize your refunds while reducing your taxable income this year and make filing taxes less intimidating. Together, let's get back to maximizing our potentials!