I am a Sole Proprietor in business. Last month, before expenses, I grossed $10,000. After expenses, my net income is $8000. Am I taxed from the IRS on the $10k or on the $8k?
Also, is my IRS tax bracket based on the $10k or the $8k?
Tags: determined, Proprietors, sole
You’re taxes on your net after expenses for self employment tax. Then your personal exemptions and deductions are subtracted to determine your taxable income for income tax purposes, which determines your bracket.
Check it out. The IRS offers this calculator to help estimate taxes.
You start with the $8k. You’ll file a Schedule C and Schedule SE when you do your Form 1040. Go to the IRS website and download copies of these forms and program them into Excel along with your regular ledger and statements so you keep them as you go along through the year.
Don’t forget that you MUST pay your estimated quarterly taxes on or before the 15th of the month following the end of each quarter using form 1040 ES.
I recommend you get a tax professional to assist you. I have been self-employed for over 20 years. The SE tax is what is going to bite you. Your tax bracket is determined by your annual income.
The IRS taxes you on your net income so $8000. You’ll be responsible for 15.3% SE tax so about $1224 on top of any income tax. Your Federal income tax is likely to be $0. But expect at least the $1224 SE tax.