Sole proprietors report their business income by attaching schedules to their personal federal 1040 tax return. After combining Schedule C income with your other adjusted gross income, pay any tax that wasn't withheld from other jobs or paid quarterly with 1040ES with this form.
Forms to use
Do you qualify?
There is an easy Schedule C-EZ for businesses which:
If your business has inventory, it should be using the accrual method of accounting (see Accounting Systems). Report your cost of goods sold (the cost of any inventory that you sold) in Part III on the back side of Schedule C.
Cars for employees
Employers who provide vehicles to their employees do not have to keep reports of vehicle use IF they have a written policy that prohibits personal use. Commuting is allowed under limited circumstances. The written policies must meet specific IRS criteria. For complete information, contact the IRS.
Due date April 15
How to complete the Sch. C
Lines and What to enter
A to H Basic questions about your business. On question D, if you do not have employees or a profit sharing plan, you do NOT need an employer ID number.
Part I Total income less returns less the cost of any items sold.
Part II Expenses (except Home Office Expenses).
29-32 Net profit before and after home business expenses. Home business expenses can only be claimed by Schedule C filers, using IRS form 8829. If your business had a net loss and it was a result of home business expenses, you must carry-forward these home expenses to future years (i.e. you can't lower taxes for non-business income using home expense deductions). Also, if you had a loss but you did not materially participate in the business during the year, you may not be able to take the full loss this year. Contact the IRS or your tax advisor for complete information.
Part III Cost of Goods Sold. Enter your inventory purchases, cost of your labor, and inventory at the end of the year. You cannot deduct unsold inventory as a business expense this year.
Part IV Vehicle information. Do not complete this section if you also purchased other business equipment with depreciation or amortization. Complete IRS 4562 instead.
Along with IRS 1040 and Schedule C or C-EZ, remember to include:
Mail these forms with any taxes due to the IRS.
Questions? Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at http://apps.irs.gov/app/picklist/list/formsPublications.html.
Business Property Tax
Business real property (land, buildings, etc.) and business equipment are subject to an ad-valorem tax in the State of Montana. All non-exempt property is taxed based on its full market value. Different classes of property are subject to different assessment rates. As an example, real property (land and buildings) in the City and County of Butte-Silver Bow is currently taxed at 1.54% of its market value annually (prior to any incentives).
Business equipment taxes have been declining in recent years because of actions of the Legislature. In 1995, the Legislature enacted a law which results in a continued decline in business equipment property taxes. In 1999, this legislative action has resulted in a decrease in business equipment taxes to 2.39% of the market value annually, prior to the application of any tax incentives.
Tax on inventory
Business inventories, goods-in-transit, intangible assets and freeport merchandise are statutorily exempt from property taxation. In addition, business equipment belonging to qualified research and development companies may be taxed at approximately 1% of market value in perpetuity.
This form is used to report business you have done with independent contractors (who are not corporations) and medical corporations. Complete Form 1099-Misc:
If you paid over $600 in interest (to a non-corporation), you must file IRS form 1099-I. To request this form, call the IRS at (800) 829-3676 or go to http://apps.irs.gov/app/picklist/list/formsPublications.html
Forms to use
Preparing 1099s is not user-friendly. The IRS does not have a direct way to input the information online. Instead, it has authorized companies to be 1099 providers. Do a search on the Internet for current providers and prices.
Annual reporting requirement
January 31 to the recipient
February 28 to the IRS
To do it yourself
Doing it yourself is possible, but not user-friendly. You have to use official IRS forms and must prepare them using a computer or typewriter (remember those?). Here is how to do it:
Prepare 1 form for each payee.
Lines and what to do
How to complete form 1096
1096 is the transmittal form. It must also be prepared on a computer or typewriter. Prepare one form to transmit all the 1099-Misc.
Lines and what to do
Bottom Check box 1099-MISC - 95
How to submit
A few more rules $50 fine for ignoring these rules:
Questions? For forms call (800) 829-3676. You cannot obtain original forms from the Internet. For information, call (800) 829-4933 or read Publication 937 Business Reporting.