The answer to this question depends on how your small business is set up. Let’s consider the two most common structures: sole proprietorship/single member LLC and partnership/multi-member LLC
If your business is a sole proprietorship or a single member LLC, you’re income and losses pass through the business and are reporting on Schedule C of your personal tax return. You will be responsible for paying the self-employment tax and income tax on your profits. Most businesses set aside roughly 30% of income to cover these amounts and make estimated tax payments quarterly.
If your business is partnership or a multi-member LLC, the income and losses are still passed through, but must be reported according to the percentage shares of ownership. You allocate the income and losses among partners by filing a form K-1 and then using that information to fill in the Schedule C on your personal tax return. Again, you may need to pay estimated taxes throughout the year.
An experienced tax lawyer can help you determine the best structure for your business and map out your tax reporting obligations, while helping you preserve liability and minimize the amounts owed to the IRS and the state. LawTrades can connect you with one of the knowledgable attorneys in our network for a free 20 minute consultation to discuss how they can assist you.