A first-time sole proprietor, an unincorporated owner, reports profit or loss on Schedule C, filed with personal Form 1040. Add Schedule SE at $400 or more in net self-employment earnings, Form 1040-ES for quarterly payments, and payroll forms if you hire. Your exact list depends on entity choice, workers, and how you pay during the year. A solo freelancer files differently from a founder with staff, partners, or a corporation.
Table of Contents
- What do solo founders file?
- When do you owe Social Security and Medicare tax?
- How do you pay without a paycheck?
- What changes when you hire?
- What about contractors, partners, and your tax ID?
What do solo founders file?
A solo owner does not file a separate business income-tax return. The Internal Revenue Service explains in its Sole Proprietorships page that profit or loss goes on Schedule C with Form 1040.
Schedule C is the business attachment to your personal return. Use it to list income, subtract ordinary costs, and carry the net result to Form 1040.
When do you owe Social Security and Medicare tax?
Self-employment tax covers Social Security and Medicare for founders without an employer withholding them. The Internal Revenue Service notes in its Schedule C and Schedule SE answers that net earnings of $400 or more trigger Schedule SE.
The IRS forwards that result to Social Security for benefits credit. A side project with $350 in net earnings would not trigger it, while a $2,000 freelance profit would.
How do you pay without a paycheck?
Employees pay through withholding, but founders usually pay in four installments. The Internal Revenue Service describes in its estimated tax guidance quarterly payment with Form 1040-ES vouchers and a worksheet. Base each payment on expected adjusted gross income, deductions, and credits for the year.
- Estimate income, deductions, and credits with the worksheet
- Send the quarterly voucher payment by the due date
- Save confirmations to reconcile on your annual return
What changes when you hire?
Hiring turns you into an employer with withholding and reporting duties. The Internal Revenue Service states in its employment tax topic that employers file Form 941 each quarter, while very small employers owing $1,000 or less yearly may use annual Form 944.
Most employers also file annual Form 940 for federal unemployment tax on taxable wages. Give each employee a Form W-2 showing wages and withholding for the year.
What about contractors, partners, and your tax ID?
Entity choice changes the income return. Partnerships and multi-member LLCs file information return Form 1065 with K-1s for each owner, S corporations file Form 1120-S, and C corporations file Form 1120.
Pay for outside help is reported separately. Report $600 or more for contractor services on Form 1099-NEC, and use Form 1099-MISC or another information return for other miscellaneous payments. Apply for a free nine-digit EIN online, or by fax or mail with Form SS-4, before you file returns, hire, or open a business bank account.