My Business Isn’t an Entity Yet. What Should I Do For My Taxes?

Once you decide to launch a business or start working for yourself, it takes time to establish your business entity. If taxes are due before you have an LLC or an S-Corp, you may be wondering how to handle your taxes. Here are the answers to frequently asked tax questions about filing taxes after starting a business. 

How do I file taxes if my business isn’t registered yet?

If you’re running a business operation and earning income from it, the IRS considers you self-employed for tax purposes–even if you don’t have a business license or entity.

As a rule of thumb, the IRS requires you to file an income tax return if your net earnings from your self-employment are $400 or more.* If this is new to you, you may want to learn about the basics of self-employed taxes.

If your business earned a profit this year, that amount should be included in your income on page 1 of Form 1040. But if your expenses were more than your income, you will report a loss. TaxSlayer Self-Employed will walk you through your return step by step, making sure your income and expense information is entered into the correct tax forms.

*If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any of the other federal filing requirements. 

Can I write off business expenses if I don’t have an LLC or an S-Corp? 

Yes, even if you are filing as an individual, you can still write off business expenses. All businesses can deduct ordinary and necessary expenses from their revenue. 

The IRS will tax you as a sole proprietor if you are the only owner. This means you will need to file a Schedule C or Schedule C-EZ to calculate the tax for your business operations. This will also allow you to deduct business expenses like mileage, home office, advertising, and many more. 

You don’t have to be an expert to file your taxes as a small business owner. TaxSlayer will enter the information you provide into the appropriate tax forms and help you claim the tax breaks you deserve. Try TaxSlayer Self-Employed.

Can a sole proprietor have W-2 employees? 

Yes, sole proprietors are allowed to hire and pay employees. To be compliant, you’ll need an Employer Identification Number (EIN) from the IRS. You’ll also need to file and remit payroll taxes.

When you hire a W-2 employee, it does not make you an employee. As a sole proprietor, your earnings are still subject to self-employment tax. But your employees’ salaries and benefits count as labor costs, which you can deduct as a business expense.

If you hire independent contractors instead of employees, these self-employed individuals are responsible for reporting their own taxes, so you won’t deduct taxes from their wages. 

Read also: Hiring and Paying Your Kids to Work for You

Am I required to have a business license to be a sole proprietor? 

To operate legally, any business entity – including sole proprietors – typically must obtain a business license. This will designate your business as legitimate. Not only do most jurisdictions require a business license to perform most trades and professions, but also for insurance and liability reasons. Depending on the line of work, you may need more than one license, including: 

  • Operational license 
  • Occupational license 
  • Federal licenses 
  • Permits 

Should I be collecting sales tax if I don’t have a business entity? 

Typically, if you sell a product or provide a taxable service, you should be collecting sales tax. If you operate your business in Alaska, Delaware, Montana, New Hampshire, or Oregon, you don’t have to worry about state sales tax because these states do not charge it.  

If I have an LLC business, do I also have to file a personal return? 

Yes, if you are a member of an LLC, you must file a personal return. An LLC is what the IRS calls a “pass-through entity.” Any business profits or losses are passed through to the members of the LLC, who report this information on their personal tax returns. While the LLC does not pay federal income taxes, they may pay state income taxes. They must also file their own return, even if they are not responsible for paying the taxes because the taxes fall to the members. 

If I have an S Corp, do I also have to file a personal return? 

Yes, if you are a member of an S-Corp, you must file a personal return. Even though an S-Corp operates as a corporation, it is similar to an LLC because its shareholders pay the federal income tax on the business profits. The S-Corp is also required to file an annual tax return as well. 

When should I open an LLC for my side hustle? 

It’s important to seek professional legal advice when deciding whether to form an LLC or remain a sole proprietor. Starting an LLC provides your business with additional personal liability protection. This is the main reason most LLCs form. Otherwise, by continuing to operate as a sole proprietor, you may be exposing yourself to unnecessary risk.