Return to Menu
FM-15 Tax Liabilities SCORE Chapter 570
	Sole Proprietor’s Tax Liabilities
If you operate a business as a sole proprietor there are several things you should know about your tax responsibility to aid you in your business planning. Schedule C You (or your accountant) will be required to complete a Schedule C (Profit or Loss From Business) for the business (Sample on the back.) This form will be used to determine the amount of Net Profit your business had for the year as follows. Example Gross Receipts $50,000 Less Cost of goods sold 25,000 Equals Gross profit 25,000 Less All expenses 15,000 NET PROFIT $10,000 You must now transfer this figure to a line to your 1040 Tax return “Business income or (loss), Attach Schedule C.” You must also transfer this figure to a Schedule SE to determine the amount of “Self-employment” tax you must pay. Schedule SE If you had been employed, your employer withheld Social Security tax form your salary and they paid a matching amount toward your Social Security. Now that you are Self-employed you are responsible for both parts of this payment. This will amount to approximately 15+% of your Net Profit. Example Net Profit $10,000 x .0153 TAX DUE $1,530 You must now transfer this amount to your 1040 return in the area of Other Taxes (Self-employment tax) Attach Schedule SE. This will be added to the amount of regular income taxes that you owe. Estimated Income Tax When you were an employee, Income Taxes were withheld in advance from your wages each payday. Now that you are self-employed as a sole proprietor you must also pay your taxes in advance by preparing a estimated tax declaration and making estimated payments quarterly. It is important that these be accurate or revised quarterly or a substantial penalty can occur. It is suggested that you consult an accountant on all tax matters or visit www.irs.gov for complete and updated information.