 Most of this information comes from the tax guide for small business for individuals who use Schedule C, Publication 334, Tax Year 2022. You can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, we're focused online. One that being income, remember in the first half of the income tax formula is in essence an income statement. However, it's just outlined just the scaffolding many other schedules and forms flowing into these line items. For example, with the income line, we're focusing in on a Schedule C often used for sole proprietorship, which in essence is its own income statement having income minus expenses, which are basically business deductions. The net income of the Schedule C flowing into the income line item here of our income tax formula, which in essence represents page one of the form 1040. So when we look at the form 1040, we're focused on line eight other income from Schedule 1, meaning the Schedule C net income will flow through to the Schedule 1, which will flow through to the first page of the form 1040. Here's an example of the Schedule C profit or loss from business where we have income minus the expenses. The net income in essence, the income minus the expenses is what flows through to the Schedule 1, then to the first page of the form 1040. Now we're going to go through basically an outline of different topics that we will be looking at as we go through and think about a sole proprietorship that is going to be reported on a Schedule C. Remember that a lot of us, there's a lot of different components of the income taxes or the income statement that are affected from a Schedule C, such as the Schedule C, the Schedule 1, the self-employment tax, we have other deductions that could be impacted. And so when we talk about these different items, there will often be changes or interrelationships between them. So there's not really an easy way that we can just go through one topic to the next topic because they're interrelated in some ways. So we will try to lay them out so we can talk about one thing at a time. And every time we do so, we're going to have to take a step back and think about the interrelationships between these items as each of them change. You've changed, man. You've changed. So what you need to know. So Table A provides a list of questions you need to answer to help you meet your federal tax obligations. After each question is the location in this publication where you will find the related discussion. So these are going to be some of the concepts that often come up when people think about reporting their sole proprietor business and we will be touching on many of them. And you can also, of course, go through the publication if you want to jump to more information about any one of them. So the following is a list of questions you may need to answer so you can fill out your federal income tax return. Chapters are given to help you find the related discussion in this publication. Okay. So first question, what kind of federal taxes do I have to pay? How do I pay them? So obviously, when we're thinking about the income tax system, we have the income tax that we're dealing with, but they also kind of sneak in there the social security and Medicare taxes, which are the self-employment taxes. That's the other big one that we have to basically take into consideration. Oftentimes, one often ignored because when we think about a W2 employment situation, the employer takes care of the withholdings of social security and Medicare and when we think of the form 1040, we don't really think about anything other than the income tax. We don't really think about payroll taxes or social security and Medicare, but when you're doing a sole proprietorship, it becomes a big factor. So what forms must I file? So we're going to go through some of the forms. Obviously, we touched on this in a prior presentation when we've looked at all the different changes that happen to the tax return when we just add a Schedule C, right? We got the Schedule C that's going to be on there, and then we also have the self-employment tax. We've got the Schedule 1 and so on and so forth worksheets that are going to be included. We'll try to touch on those as we go through some of the other options with relation to a sole proprietorship. And of course, if you want to look at this and jump to these questions in the publication, you can see Chapter 1 and the other question, what kind of federal taxes that's in Chapter 1. So what must I do if I have employees? Note that as a sole proprietorship, you're saying that you have one owner. One owner generally owns a sole proprietorship. There could be an exception if you're a married couple and you're in a community property state and so on and so forth. But generally, when you're filing a Schedule C, you've got one owner of the business. If you start a hot dog stand, you don't incorporate it. You just start earning money. Uncle Sam wants his percent of it. You're going to be a sole proprietorship at that point. Note that when you grow, then you have some options. You're saying, I need help here. How am I going to have that help? Am I going to hire employees? Am I going to pay contractors? Or am I going to take on partners? And those are some questions that you've got to think about. And what are they going to be the consequences of those decisions? If you take on a partner, then you're not generally a sole proprietorship anymore, but a partnership and you're going to have to file a partnership return from a tax perspective. And it also takes on more liability. You want to make sure your partnership agreement is worked out well between the partners. If you have a contractor, you want to make sure that they qualify as a contractor and not as an employee. Otherwise, the IRS could get upset and call them an employee and then get you in trouble that way. You have less control over a contractor, but it's an easier system to set up. And then payroll, if they're an employee, then you don't have the situation where they have revenue splitting and you still have control, a lot more control in that situation. But the IRS is going to require other stuff of you, such as the reporting of the W2s, the withholding of the payroll taxes and all that kind of stuff, which is quite burdensome. So you want to make sure that you consider that. It's also a little bit confusing to think about the difference between paying other employees as a sole proprietorship and the fact that the government kind of treats you as a sole proprietorship as an employee of your own business, not because you have to issue yourself a W2, but because the net income that you have from the business is being subject to the equivalent of payroll taxes, that being social security and Medicare and the form of self-employment taxes. So that kind of confuses what it means to be an employee sometimes when we're thinking about a sole proprietorship. We'll talk more about that in chapter one. Do I have to, or you can look it up in chapter one. We'll discuss it more as we go through our presentations. Do I have to start my tax year in January or can I start it in any other month? Now, note when you're starting a business, oftentimes the calendar year is the default that people think of what their business cycle is going to be. Obviously, for individual tax returns, they are typically due by April 15th, but sometimes you might want a different year that will be lined up to your natural year when your business cycle ends basically and that can be easier for just logistic purposes oftentimes. But because you're a sole proprietorship and you're reporting on a schedule C, you might have some limitations in terms of can I have some calendar year that's going to be or a fiscal year for taxes that's different than the calendar year. So we'll talk a little bit more about that in chapter two where you can look it up in chapter two. We'll probably touch on it in our discussions as well.