What is Business Income?
Business income is money you earn from a sole proprietorship, a small business or self-employment work. That's a small explanation for a big range of situations.
The key point is: It's how you earn the income that makes it business income, not the amount or the setting or anything else. If you earn income by selling services or goods in an independent manner, then that specific income counts as business income.
What is a business expense?
This is something you paid for so you could do the work to make this money. When you report a business expense, you need to match the expense with the specific business it was for. This part of reporting your business expenses is key to getting your taxes done right.
Here’s where it can get detailed. If you spent money on things for your W-2 job or a job search, you would report that as a job-related expense. Even though they might seem similar, a job-related expense is actually different from a business expense.
What is a Schedule C?
Schedule C is the tax form that lists your business income and expenses. It doesn't come in the mail like a W-2 with pre-filled info. Instead, it gets created and filled in as you do your taxes, and at the end, it's filed as part of your personal tax return.
What if I have more than one business?
If you have multiple businesses, list each one separately on your return. This means each business gets reported on its own Schedule C.
Do I need to file a business tax return to report my business income?
You only need to file a business tax return if your business is a corporation, partnership or multi-member LLC. If this is your situation, then you need to file as business.
What paperwork do I need?
You need records of your business income and expenses, such as:
- Forms 1099-MISC, 1099-G or 1099-K
- Bookkeeping records, spreadsheets, invoices, sales receipts, etc.
- Receipts for everyday expenses like utilities, vehicle expenses, etc.
- Mileage and/or travel logs
- Receipts for large purchases like computers and equipment.
It's also a good idea to have last year's tax return handy.