Running a home-based business comes with its share of perks: no nasty daily slog back and forth to the office, more control over your time and resources, and the ability to create your own work schedule according to business needs without having to appeal to the office chain of command.
Owning your own business can be rewarding and enjoyable, but you do need to be aware of the different tax forms pertaining to self-employment so your transition from employee to business owner will be a smooth one.
Instead of just filing a 1040 EZ form every year and attaching your W2, you’ll need to attach additional forms to your tax return. Here is a breakdown of the three most common tax forms for home-based businesses:
Schedule C: Profit and Loss From Business
The Schedule C attachment is by far the most important tax form you’ll use. In it, you’ll state your business profit and loss figures. You’ll need to report your total revenue for the year, offset by your expenses. The business expenses section is categorized according to the type of business expense. Qualified expenses deductions include:
Schedule SE: Self-Employment Tax
The Schedule SE form is used to calculate the correct amount of self-employment tax that is due at the time you file your return. Since you don’t have an employer, you’re required to submit both portions of the Social Security and Medicare taxes (FICA). Here’s how to calculate what you owe:
Form 8829: Business Use of Home
If you operate your business out of your home, you may qualify for the Business Use of Home tax deduction. You’ll need to attach Form 8829 to your return in order to claim this deduction.
Eligible expenses include:
Here’s the catch: the office space must be used regularly and exclusively for business: your combination gaming area/home office/den won’t qualify.
While this isn’t an exhaustive list of tax forms for entrepreneurs, these are the three most essential forms for you to use, especially if you run your business from your home.
Self-employment tax codes can be tricky, especially if this is your first year filing as a self-employed person. Checking in with a qualified tax professional will be to your benefit, as he or she can advise you on record-keeping, estimated quarterly taxes, and the precise calculations for home office use. A tax professional may also suggest tax relief options such as the tax forgiveness program.
Running your own business can be satisfying in ways you won’t experience with a conventional job. By staying on top of the change in your tax status and filing the correct forms, your transition from employee to business owner will be a smooth one.