A sole proprietor will complete Schedule C. Schedule C acts as a profit or loss statement for your business and is a large part of your income tax return. After you report your basic business information, you’ll need to add up gross receipts or sales and report them as income. You’ll then subtract the total cost of your goods and business expenses from that amount. Your net profit or loss is then added or subtracted from other non-business income items on your federal and state income tax returns to arrive at your adjusted gross income. Legally a loss may only be shown twice within a 5-year period.
Next, let’s review estimated payments. Business owners pay quarterly estimates based on the profit they earn. Eighty percent of your taxes owed must be paid in the year you earned the income, on or before the income tax filing deadline. If you underpay your required estimated amounts with the IRS or DOR, you will have to pay an underpayment penalty.
When you’re ready to file, file your Massachusetts income tax return with Schedule C. You’ll find more information on the IRS and DOR websites, specifically the IRS’s virtual small business workshop.
The Massachusetts Department of Revenue’s (DOR’s) small business workshop video series is designed for new business owners who are unfamiliar with business tax requirements.