I recently set up a sole proprietorship because I was receiving funds from my friends business, kind of like a consulting fee, however the fees will bring in between 10k and 20k per year.
So now my friend will write the check to my business so I can pay taxes, use write offs, etc.
If I transfer money from my business account, into my personal account, will I then have to claim that money as income on my personal taxes?
How can I get the money from my business to my personal account without tax liability since the taxes will allready be paid by the business?
Thanks,
2007-09-05
04:00:10
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9 answers
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asked by
GTP01
2
in
Business & Finance
➔ Taxes
➔ United States
If the business is a sole proprietorship then you are the business, and the activity will be reported on a Schedule C on your federal 1040 return, and state return (if you live in a state with a state income tax). You will pay the taxes on the income earned by the business, which will include self-employment (SE) tax as well as regular federal and state income tax. You won't have to worry about any tax effect on moving money from business accounts to personal accounts or vice-versa, since you are the business and the business is you. But you should make sure that for the most part you keep the business monies separate from your personal monies.
2007-09-05 04:37:35
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answer #1
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answered by Anonymous
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You have recently set a sole proprietorship business and you need to know some basic about it.
Sole Proprietor business does not file any federal tax or state tax return and does not pay any taxes on the income. So no taxes "will already be paid by the business."
Only if you have employees, then you need to get EIN (employer identification number), withhold taxes from paycheck, pay employer's part of employment taxes and file related returns.
As a sole proprietor you have complete control on the business and entire profit or loss from the business belongs to you. Thus if you want to put money in your business account or take out profit and put in your personal account, it is your choice. Only thing is that you should have proper accounting -- record of your business income and business expenses.
If your friend write the check to your business and it is a business loan, and you take our the money for your personal use, it is your choice. Only thing is that then you may not be able to deduct all or part of the interest on the load as your business expense.
When you file your tax return Form 1040, for your business activity you need to complete Schedule C. On schedule C you record your income and expenses and the net income from schedule C is put on line 12 of Form 1040. Your business income is also subject to self-employment taxes @ 15.3%.
2007-09-05 06:36:39
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answer #2
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answered by MukatA 6
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Good for you! I always support small business it's what made this country and it is always good to hear from other like minded energetic people! Actually it won't effect anything ($200 ). The very best thing you can do for yourself however is to set up a payroll account and take a regular paycheck. You will need to deduct taxes etc but the benefit is that you will be on record as being employed. Although it won't matter to you now it helps several ways. 1. You will be able to budget better for your business. 2. You will be able to much better calculate how much you really should be charging for services. 3. You will be able to see if you are truly making money - and if that money is enough to justify a business. 4. You will pay social security (this will be very important in the future when it comes time for you to collect the ss benefits.). A good accountant can advise you for a fee of exactly how and what records you need to keep. It's a fairly simple process once you know how. Might be wise to hire a CPA to set you up and then just give him your books at year end for the final tax filings. The rest you can do yourself. Good luck dear!
2016-05-17 08:33:15
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answer #3
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answered by ? 3
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The taxes are not paid by the business. The taxes in a sole proprietorship are paid by you. It appears you do not realize this.
It is a good idea to clearly identify business income and expenses as separate from nonbusiness income and expenses. A separate bank account and separate credit card are good ideas but not necessary. Moving money between accounts has no tax effect.
Is there a legitimate business activity here? There is no reason for your friend to give you money to pay your taxes, if in fact you have income. You could end up owing a lot more taxes than you realize. If you assist your friend in taking deductions that are improper, you could be subject to fines and penalties.
Have your business operation reviewed by an impartial third party who will give you unbiased advice as to the tax benefits available to you.
2007-09-05 16:46:12
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answer #4
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answered by ninasgramma 7
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As a sole proprietor, all business income is taxed at personal income. You will use a schedule C in addition to your 1040 form, when filing taxes. It is only when you form a corporation that both the business and the individual are taxed on the income, although the salary paid by a corporation is tax deductible.
2007-09-05 04:11:57
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answer #5
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answered by bkwrm006 2
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If you transfer money to your personal account, no you don't show it as personal income, but it's not a deduction for the business either. With a sole proprietorship, basically everything is yours. You file one tax return, your personal one, including the business income and deductions on a schedule C or C-EZ.
2007-09-05 05:09:30
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answer #6
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answered by Judy 7
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Call a CPA immediately to see if the work you are doing would result in more complicated taxes like a Schedule C and especially if you need a license or certification to accept fees or payment for the type of work you are performing. It may be the case where as a sole proprietor you are going to be taxed on any of the business profit that you put into your personal account because that would be considered personal income. Remember, don't co mingle funds between business and personal accounts without checking with a CPA!!
2007-09-05 04:29:06
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answer #7
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answered by Anonymous
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It's income on your personal return whether you transfer the funds or not. As a sole proprietor this income is reported on Schedule C on your personal return. The business does NOT file a separate return.
Moving the funds to your personal account will not trigger additional tax.
2007-09-05 05:38:33
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answer #8
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answered by Bostonian In MO 7
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The money is taxed as in comes in from your customers.
It is not taxed again when you move it to a personal account.
Sole Proprieterships are not considered separate entities. Their income is taxed on your personal return.
2007-09-05 04:22:25
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answer #9
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answered by Wayne Z 7
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