Originally Posted by Forward2013
I wanted to do something different and started selling a product june 2013.I have a full time job and sell product on a part time basis. I didn't sell a whole lot monthly and made about $2400/ 6 mo. I have an office set up in my house and have marketing,advertising and traveling expenses. I want to do things the right way but not sure what tax forms and schedules to use. I've read about schedule C and other business related forms but have only confused myself.Any advice would be greatly appreciated.
You are a self employer in terms of selling a product UNLESS you are employed by an ER as an EE. Sch C-EZ is the simplified version of Sch C for Sole Proprietorship). If you want to save time and trouble when filing taxes for your small business, then you may be eligible to use the abbreviated Sch C-EZ instead of the longer Sch C when reporting business income and expenses on your Form 1040 federal income tax return. Using Sch C-EZ can save time and reduce paperwork burden for eligible businesses.If you have a profit from your business and your expenses are not greater than $5K ;you have no employees; you have no inventory, and you are not using depreciation or deducting the cost of your home you can use Sch C-EZ.If not, then you must file Sch C as long as the amount on line 29/31 is $400 or exceeds $400 and also as long as the amount on Sch SE line 2/3 is also $400 or exceeds $400, then you must fiel form Sch SE ; The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare). The Temporary Payroll Tax Cut Continuation Act of 2011 extended the self-employment tax reduction of 2% for calendar year 2012 so the rates for 2011 remain in effect for 2012. For self-employment income earned in 2013, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).ALSO, If you are filing as a sole proprietor and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1K or more when you file your return.If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.However, You do not have to pay estimated tax for the current year if you had no tax liability for the prior year; You were a U.S. citizen or resident for the whole year; Your prior tax year covered a 12 month period. Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. You can generally deduct the pay you give your employees for the services they perform for your business.Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees' retirement.Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.Business interest expense is an amount charged for the use of money you borrowed for business activities.You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession. Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. Your travel must be primarily business-related in order to be deductible. Pleasure trips are never deductible. You can deduct travel expenses only if you are traveling away from home in connection with the pursuit of an existing business. Travel expenses you incur in connection with acquiring or starting a new business are not deductible as business expenses. However, you can add these costs to your startup expenses and elect to deduct a portion of them and amortize the remainder over 180 months; Businesses can only deduct the cost of advertising and promotions when these expenses are ordinary and necessary. This means that advertising and promotional expenses are only deductible when they have a clear relationship to the business and its ability to reach customers, manage its brand image or provide information about its products. Efforts such as anonymous sponsorships or donations are not promotional because they fail to represent the business to the consumer, making them ineligible for deductions