Can I report the income from a small side business on my tax return rather than filing separate tax forms for it?

by Rosemary Lamaestra, CPA | Sep 14, 2018

I started a small side business in May. I have a tax ID set up for this business already, but I'm wondering if I can just report the income on my personal taxes rather than make this a full business and file separate taxes for it. I just don't want to do things incorrectly come tax filing season. 

You did not mention how you registered your business with the IRS. Did you register as a sole proprietor, a limited liability company, or an S corporation? Each has its own filing requirements, which I will briefly review.

Sole Proprietor – The income and expenses of the business will be reported on a Schedule C, which is part of your individual 1040 tax return. You are not required to get one, but you may have an individual employer identification number (EIN) to report on the return. However, if you have employees, you are required to have an EIN.

Limited Liability Company (LLC) – This structure does not have a designated tax form, and can be filed on various forms. Keep in mind that the tax form you choose must be followed in every year of the business. An LLC has “members” as owners. If the business is set up with only yourself as the member, you can file a Schedule C (as in sole proprietor) or you can elect to file as an S corporation (Form 1120-S). If there is more than one member, you can file as a partnership (Form 1065) or an S corporation.

S Corporation – If you choose this structure, the owners are “shareholders” and an EIN is required. This type of business files a separate tax return on Form 1120-S.

It would be in your best interest to contact a CPA to assist you with setting up your books and records. You want to be sure to capture the expenses that you are entitled to for a small business. Depending on income, you may be required to file quarterly estimated taxes. Also, a CPA will also explain the hobby rules and how they may affect your business.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Rosemary Lamaestra, CPA, CFE, is a manager with RLB Accountants in Allentown, Pa. 

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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