 Income tax 2021-2022, self-employed, what you need to know. Get ready to get refunds to the max diving into income tax 2021-2022. Most of this information can be found in Publication 334, Tax Guide for Small Businesses on the IRS website at irs.gov, irs.gov. We're looking at the first line of the income tax formula, although we're supporting that within essence of Schedule C, which will be an income statement, income and expenses. Expenses basically being deductions, which the net then pulls into the first line of the income tax formula, as well as the first page of the form 1040, which we're looking at here, focusing in on line number 8. Other income from Schedule 1, the Schedule C flowing into Schedule 1, and then ultimately here to line 8 on the first page of the form 1040. This is the Schedule C profit or loss from businesses. This is going to be basically an income statement, which flows into the Schedule C, the bottom line of it, in essence the net income, which then flows into the Schedule C, to the Schedule 1, then back here to the first page of the form 1040 and the income area. Now we're going to go over a couple items. These are what you need to know types of items. When we're thinking about a business kind of reporting, there's so many topics that basically can be covered and there's no real linear process for us to do it. It's not like we can really go from like an income statement, for example, going from the income line straight through to the expense lines, although we'll take a look at some of those items because as we've seen in prior presentations, there's multiple areas of the tax return that will be impacted. So we're going to kind of have to bounce around a bit to touch on a lot of the different things that will be involved if you have a Schedule C. So there's just a couple of them that you might want to keep in mind when you're referencing where you could find them in the tax guide for small businesses and we'll touch on more of them as we go through our presentations. So what kind of federal taxes do I have to pay? How do I have to pay them? So obviously that's going to be an important point. The first one that you would be thinking about would be the federal income taxes. But remember, you also have, in essence, the social security taxes, Medicare and social security, which are kind of like the payroll taxes and the self-employment taxes, which become quite important. And then you also want to think about when you need to pay those taxes, how are you going to pay those taxes, given the fact that they're not being withheld from W-2 withholdings, but rather something that you have to pay either with an actual check or with electronic transfer. What forms must I file? So when we start to think about a Schedule C type of business, a sole proprietor, it's going to be far more complex in terms of the number of forms that will be put in place, as opposed to simply having W-2 type of income. For example, forms such as, as of course, the Schedule C, and of course you're going to need the self-employment form at the minimum in general that would need to be filed. What must I do to have employees? So what if you have employees? Notice that if you're self-employed, then if you're talking about a sole proprietorship, it might just be you. You're basically being treated as an employee on the net income of the business because you're paying employer and employee taxes on it in the form of self-employment tax, which are basically payroll taxes, but you could, of course, as a sole proprietor, hire employees as well, and that adds a level of complications of then you have to be following the taxes that you're going to be paying with payroll taxes, which are similar to any kind of business. If you had like a C corporation, then you'd still have to deal with similar kind of payroll tax situations if you have an employee as with a sole proprietorship, but you also have the thought process of what do you then get to deduct in terms of the Schedule C for basically your employees. It also gets a little bit confusing when you talk about payroll taxes with regards to you paying your employees as opposed to when you're talking about basically the form of payroll taxes that you're paying, which is in essence the self-employment tax, because you're not actually paying yourself as an employee of the sole proprietorship and therefore the way that Iris is going to collect the self-employment tax, which is kind of like payroll taxes, is by using the self-employment tax instead of having them calculated in the payroll. When you process payroll for employees, then you're going to be paying self-employment tax the employer portion out of you and you're going to take out of their wages their withholding. So that's a whole issue in and of itself. Notice that if you're thinking about payroll with regards to a tax preparer, then you want to keep it kind of distinct in your mind in terms of the data input for the actual federal income tax return and then what you're going to do for employers that have questions about employees and whether they should have employees, whether they should hire contractors, whether they should hire partners and you're either going to think, should I help them out with those kind of things or am I going to align myself with other people that have that kind of specialization so that I can do what I do, which is basically the data input and then I can help guide them to where they need to go if they need advice on things like setting up another entity in LLC or payroll advice. Who's going to do the payroll taxes and actually the reporting? Are you going to do that through your accounting system like through QuickBooks or something like that with the third party helping you to process the payroll and do the payroll tax forms which are different than the federal income tax forms because those are things that are typically reported quarterly on like a 941 yearly than the 940 and so on. Okay, do I have to start my tax year in January or can I start it in any other month? So you might have a different fiscal year than the calendar year for the business. Normally if you're a sole proprietorship you're usually going to have a calendar year January through December but you might then have exceptions to that. You might have questions in terms of people wanting a different year. What are your capacities in that instance? What method can I use to account for my income and expenses? So in other words, if you have any accounting background this gets into the accounting area whenever you're doing taxes for a business entity that's where the CPA designation is actually quite good. Notice that there's other designations for tax preparers like an enrolled agent for example. The thing in a lawyer can do taxes and whatnot. The thing that the CPA might have more in-depth knowledge about would be the accounting because a lot of the CPA examination and so on is related to just accounting and that's going to be necessary for the actual tax preparation. However, if you're a tax preparer then think about the situation of how much accounting do I want to dive into? You're probably going to be dealing with small businesses who might not have the best accounting system that is going to be set up. Is that something that you want to dive into or do you want to be saying look I just do the data input of what you give me if you need bookkeeping help then align yourself and network yourself with bookkeepers and tax professionals they can basically possibly help and pick up that kind of advice as well just to keep that in mind. What must I do if I disposed of business property during the year? So then you've got the instance normally an income statement is fairly straightforward. We talked about what kind of accounting method usually you can choose between like a cash method or we'll talk more about this later or an accrual method and those are accounting kind of topics or you might have some kind of hybrid method between the two of them but the goal is consistency so once you choose a method then you basically want to be kind of consistent with it you also could have obstacles for things like inventory which are more likely to push you towards an accrual method because inventory by its nature is usually accounted for on an accrual method. And then you also have a situation of well if you buy large things and this is especially important if your business has a larger capital investment that you need to put in place so for example if you need to buy like a large piece of equipment like a tractor or something like that to do the business then you're going to have these large pieces of equipment that are on the books and that means you have to deal with an accrual concept which is going to be the depreciation and remember that's a little bit confusing for a sole proprietorship because you don't have a balance sheet on the actual income tax return although in accounting you would want the balance sheet that would mean that these big assets are going to go on the balance sheet of property, plants and equipment and then you'll depreciate them not in accordance with generally accounting principles but in accordance with the tax code and then if you dispose of a piece of equipment you'll have to write that off. Now these things will take place on those types of businesses that have a substantial investment that needs to take place if you're talking about just like a service business like gig work or something like that you might not have too many big things that you're purchasing doing gig work and you might not have these big items that are going to be more of a problem so as a tax preparer you might also want to think about what industries if you're going to pick up C corporations or schedule C businesses what kind of industries do you want to then be picking up in what kind of industries might you say maybe that's not the industry that I want to pick up because it has things along with it that are going to add to complexity if you want to deal with inventory do you want to deal with large pieces of equipment large investments and so on and if not network with people that might want to help you out or pick up those kind of clients or those components so what kinds of business income do I have to report on my tax return so now you've got the question of well now that I have my business set up what kind of income what qualifies basically as business income and the common answer I think well anything that I get a 1099 for I have to include but that's not generally the case even if you don't get a 1099 for it you typically need to include it in income the 1099 is just a double verification the IRS is attempting to put in place to kind of lock things down what kinds of business expenses can I deduct from my tax return this is clearly usually the more complex question usually those expenses of course in general the rule would be those expenses that were necessary in order to help you to generate the revenue were the ones that you get to deduct but you can imagine a lot of gray area in terms of what's a necessary expense was it personal or was it business what if it has a personal and business component what about like a part of my home for example the home office deduction what about part of my car which has business and personal possibly related to it so you can see some that's where most of the gray area comes into place because there's a lot more expenses items usually in terms of line items although we're hoping the income in terms of total dollar amounts will be greater what kinds of expenses are not deductible as business expenses so just as important as knowing what kind of expenses are deductible we want to look at those things that would not be deductible as expenses as well so what happens if I have a business loss can I deduct it notice anytime you have a loss the IRS is going to be skeptical of the loss because notice from the IRS's perspective what do they want they want to be your silent partner sharing your income they don't want to be liable for your losses right there they don't want to pay you for your losing money so if you have losses the question is well what can I do with those can I can I take like if I have a Schedule C business like gig work can I take the loss against my W2 income and sometimes you can a lot of times you can have a Schedule C business if it qualifies as a business if it's not a hobby for example and so on so that's going to be an important point but you want to be aware that losses are going to be something that the IRS is going to be kind of skeptical of if you have losses for a long period of time the IRS might be more likely to want to check that out and check out what's going on so normally when we think about a Schedule C we think about income and the government taking a piece of it but the loss side of things is important because that can have significant tax implications what are my rights as a taxpayer so you can get into what kind of rights do you have in terms of the taxpayers your reporting rights with regards to the reporting of the IRS if they have any changes and so on and where do I go if I need help with federal tax matters you can go to some of this give you some suggestions in terms where you can go to get help and some guidance on those issues