Good morning everyone.  It's been well over a year since my last blog.  Life took over, but DMS is back and better than ever. 

The purpose for today blog is answer a question that I get alot.  How are Sole Proprietors Taxed? So here is the answer to your question:

All sole proprietors must report ALL business income and losses on their personal tax return; the business cannot be taxed separately.  Business owners will be taxed on all profits of the business — that’s total sales minus expenses — regardless of how much money you actually withdraw from the business. In other words, even if you leave money in the company’s bank account at the end of the year — for instance, to cover future expenses or expand the business — you must pay taxes on that money.

You are allowed to write off any money you spend in pursuit of profit, including start-up costs, operating expenses and product and advertising costs, as well as business-related meals, travel and entertainment expenses. But you’ll need to keep accurate records for your business that are clearly separate from your personal expenses. One good approach is to keep separate checkbooks for your business and personal expenses — and pay for all of your business expenses out of the business checking account.

Since you don’t have an option to withhold income taxes from your paycheck, it’s your job to set aside enough money to pay taxes on any business income you bring in over the year. To do this, you must estimate how much tax you’ll owe at the end of each year and make quarterly estimated income tax payments to the IRS and, if required, to your state tax agency.

Self-employment taxes are equal to the payroll tax for employees of a business. While regular employees make contributions to these two programs through deductions from their paychecks, sole proprietors must make their contributions when paying their other income taxes. Another difference between employees and sole proprietors is that employees only have to pay half as much into these programs because their contributions are matched by their employers. Sole proprietors must pay the entire amount themselves.


For any questions regarding the above information.  Please send an email to: alesha@divinitymarketingsolutions