ForumsStarting a Business

If you have been operating your business as a sole proprietorship, then you would complete a Schedule C (to figure/report your business income and expenses) and include it with your 1040 personal return (showing the "Net Profit" from your Schedule C in the appropriate box on the 1040).

If you never registered the business and have been operating as a private individual (which is how it sounds), then you would probably be better off reporting the money you made on the "Other Income" line of your 1040 return. (You'd lose out on the ability to deduct your business expenses that way, but if you never registered the business, then you almost certainly didn't file or pay the state and local business fees and taxes that may apply, didn't collect and deposit sales tax on your sales, etc. So filing a federal return as a sole proprietor business -- when you were really operating locally as a private non-business individual -- could prompt those state and local taxing authorities to come looking for their overdue payments.)

Your decision, from here forward, should be based on the question, "Am I truly engaged in this activity to make a profit, or is it just an 'awesome extra-curricular activity'?" If you're in it to make money, my advice would be to register as a sole proprietorship, most likely with your county clerk depending on where you live (in most locations, it's very inexpensive and everything involved can be done in a couple of hours). Then operate it like a business. Next year, you'd file a Schedule C to report the business' income and expenses.

Hope that helps. Best wishes. (Note: I'm a business owner and consultant, not a tax attorney or accountant.)

I was thinking Charlotte NC, not FL -- but yes, different states have different rules. I operate in states where my services are not subject to sales tax, but even so, I'm still required to have a sales tax permit and file returns quarterly (they consistently show $X total sales and $0 taxable sales). Also, even when there is no state income tax, many local jurisdictions impose fees and taxes on businesses. My community requires a permit/annual fee for home-based businesses and charges property tax on home-based business equipment, for example. Some communities disallow home-based businesses entirely. The point I was really trying to make is that filing a tax return as a business entity, if this person didn't really have a business, might open a door she didn't want to open yet. Thanks for clarifying.

Happy New Year and best wishes to you, too, Coach Mike!

". . . far more complicated" in what ways?

rjc2324,

First off, I'm not seeing where I wrote a Line 21 categorization is open simply to their interpretation (or anything like that).

Second, we only have the option of broad strokes and assumptions in this type of community -- unless the person posting the question opts to provides more detailed information. I think I was pretty clear about the generalizations and assumptions I was making, and the perspective from which I was offering a response (plus my background and credentials are readily viewable). It was a responsible answer in that regard, and the reader is free to take it or leave it.

Likewise you're free -- encouraged, in fact -- to present a different perspective or offer a different answer based on different assumptions. We all learn something that way.

You're absolutely right -- there are always a lot of questions that one would ask when we offer paid professional advice. Here, we're not. The purpose of this forum is to offer information and suggestions based on the information we have. The person posting the question (and anyone reading this thread) probably already knew she could contact a certified professional, provide the specifics of her situation, and get a conclusive answer. So I didn't think that telling her that would be particularly helpful. But neither did I imply that my suggestion was anything more than just that -- a suggestion (based on certain assumptions). Does that make sense?

So is your business a sole proprietorship, and did you file a Schedule C with your tax return in prior years showing business losses?

The business is an LLC. As we enter a 2009 I enter my third year at a business that has just been hard to keep up. But, I love it and I think if I can hang on this year and get my son into school, I might just get this thing going. Thanks so much for the info.