12.8 Small Business/Self-Employed/Other Business : Schedule C & Schedule SE
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net
Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person, you pay your Medicare and social security taxes the
same way you pay your income taxes. If you expect to owe less than $1,000 in total
taxes, you can pay them when you file your income tax return. If you expect to owe
$1,000 or more in total taxes, you will need to make estimated tax payments. These
payments are made quarterly using Form 1040-ES (PDF), Estimated
Tax for Individuals. You will need to figure these taxes at the beginning of
the year. To learn about figuring and making estimated tax payments, please refer
to Publication 505, Tax Withholding and Estimated Tax.
References:
I am a sole proprietor. Can I use Schedule C-EZ instead of Schedule C?
You can use Form 1040, Schedule C-EZ (PDF) to determine
your net profit if you have only one sole proprietorship and you meet all of the following
requirements: your business expenses were not more than $2,500, and you did not have
a net loss from your business, you use the cash method of accounting, and you did
not have an inventory during the year. There are other requirements. Refer to page
1 of Schedule C-EZ to see if you qualify. Additional information is also available
in Tax Topic 408, Sole Proprietorship.
References:
I buy and sell stocks as a day trader using an online brokerage firm. Can
I treat this as a business and report my gains and losses on Schedule C?
A business is generally an activity carried on for a livelihood or in good faith
to make a profit. Rather than defined in the tax code, exactly what activities are
considered business activities has long been the subject of court cases. The facts
and circumstances of each case determine whether or not an activity is a trade or
business. Basically, if your day trading activity goal is to profit from short-term
swings in the market rather than from long-term capital appreciation of assets, if
your income is primarily from the sale of securities rather than from dividends and
interest paid on securities, and if you expect this income to be your primary income
for meeting your personal living expenses, i.e. you do not have another regular job,
then your trading activity might be a business.
For details about not-for-profit activities, refer to Publication 535, Business
Expenses. That chapter explains how to determine whether your activity is carried
on to make a profit and how to figure the amount of loss you can deduct.
If your trading activity is a business, your trading expenses would be reported
on Form 1040, Schedule C (PDF), Profit or Loss from
Business (Sole Proprietorship) , instead of Form 1040, Schedule A (PDF), Itemized Deductions. Your gains or losses, however,
would be reported on Form 1040, Schedule D (PDF), Capital
Gains and Losses , unless you file an election to change you method of accounting.
If your trading activity is a business and you elect to change to the mark-to-market
method of accounting, you would report both your gains or losses and your trading
expenses in Part II of Form 4797, Sale of Business Property. See Publication 550, Investment Income and Expenses , for details.
A change in your method of accounting requires the consent of the Commissioner
and can not be revoked without the consent of the Secretary. Though there is no publication
specific to day traders, the details for traders in securities and commodities are
covered in Internal Revenue Code Section 475 (f) and Revenue Procedure 99-17.
References:
If you have run a small business in the past, but this year there is no
income or expenses, is it necessary to file a Schedule C?
If your sole proprietorship business is inactive during the full year, it is not
necessary to file a Form 1040, Schedule C (PDF), Profit
or Loss from Business, for that year.
References:
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