Question by Ashley S: Do I need to be worried about taxes as a small business owner?
I started my small business this year. It is a sole proprietorship and I am the only owner/employee. It is looking like I’m not even going to break even this year as far as profit vs. expenses go. Will I still owe taxes? I am so new to the tax situation for businesses that I’m clueless and hence a little worried.
Answer by Frank
When you file your taxes at the end of the year, you will fill in a schedule C, where you will list your business income and business expenses.
Your schedule C income will be the difference between the two, and you will add it to your personal income, which will increase the income tax you will owe. If it comes out negative, it will reduce your personal income and reduce the taxes you will owe.
The IRS has some tests to distinguish between a real busienss that lost money and a hobby. You can’t deduct the costs of a hobby (they don’t reduce your personal income). See my source for how the IRS distinguishes.
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