(BPT) - If, like so many others, you lost your job in 2020 and decided to turn your hobby into a money-making venture, congratulations! That’s what we call resilience. But did you know, you don’t need a brick-and-mortar store or even employees to be considered a small business by the IRS? If you’re self-employed as a sole proprietor or single-member LLC, you’ll likely need to report your income and expenses on the IRS Schedule C tax form, included with your personal income tax return this year.
“At one point in 2020, and any other year for that matter, someone’s hobby could have turned into a business,” said Ian Hardman, general manager and vice president of small business at H&R Block. “Maybe they haven’t registered their company name or rented a location to conduct business outside of their home. But, having an official name or separate location isn’t a litmus test for whether or not a business exists — the intent to make money is.”
If you made money from your business last year, you must pay taxes on that income on the 1040 tax form. And you will likely need to include a Schedule C to report your income and expenses and figure your net self-employment income. If you didn’t keep accurate records last year, now’s the time to reconcile everything so you’re not caught off-guard when April 15 rolls around. The penalties for not filing accurately can be serious and costly. In other words: Accurate tax filing will keep you out of trouble with the IRS.
The information Schedule C collects includes basic bookkeeping information, such as gross receipts/sales, cost of goods sold and business expenses. Without Schedule C, small business owners can’t deduct eligible business expenses, including supplies, advertising and vehicle costs. Schedule SE, which is the Self-Employment Tax form, must also be filed if net earnings exceeded $400; however, there is no minimum income requirement for filing Schedule C. The good news is that one-half of your self-employment tax is taken as an adjustment to income (aka above-the-line deduction) on your Form 1040.
“It’s important for self-employed individuals to see themselves as small businesses. Getting professional guidance about how to handle small business taxes instead of relying on gut instinct or assuming their situation is like a friend’s could help self-employed small business owners avoid costly mistakes,” Hardman said.
Help is available year-round, in-person and online
For good reason, many new and longtime small business owners who aren’t numbers experts have concerns about how to approach their 2020 tax returns. By working with Block Advisors, they can address this annual chore with confidence; with an average of 12 years of experience and focus on small business taxes, Block Advisors small business certified tax pros can meet the needs and expectations of self-employed small business clients.
Also, help from Block Advisors is available year-round, not just at tax time. And they can help with other small business financial tasks, including bookkeeping and payroll. Block Advisors will help you come up with a plan so you can get back to what you love. And when things change — and they always do — plans can be reviewed and revised at quarterly care checks or as the need arises. Clients can meet with their Block Advisors tax pros in person, virtually, via phone, chat or secure messaging.
To start working with the experts at Block Advisors on self-employed and small business tax returns, visit blockadvisors.com.