Many small businesses use the cash method of accounting to report income and expenses. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Find out more in Publication 538, Accounting Periods and Methods.
Business Taxes. You may need to pay Self-employment tax as well as Income tax if you make a profit. Self-employment tax includes Social Security and Medicare taxes. With estimated tax payments, you pay taxes at various times during the year to ensure you don’t have a large tax bill when you file your tax return. IRS Direct Pay is a fast, easy and secure way to pay from your checking or savings account.
Tax Forms. There are two (2) forms to report Self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. Use Schedule C-EZ if you have expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form. File Schedule SE, Self-Employment Tax, to figure your SE tax. If you owe this tax, make sure you file the schedule with your federal tax return.
Allowable Deductions. Ordinary and necessary expenses paid to run your business can be deducted. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
Business Use of a Vehicle. If you use your car or truck for your business, you may be able to deduct the costs associated with business usage. Reference Publication 463, Travel, Entertainment, Gift, and Car Expenses for details.