How to Report the Income for Self Employment or a Home Business
Male: How do I report the income for self employment or a home business?
Art: Well normally if you did work for somebody and they paid you more than 600 dollars, then most individual will get a 1099-MISC, miscellaneous. And you add up all those 1099 miscellaneouses, plus income that you collected for which you didn’t get a 1099 miscellaneous, and that goes on line one of schedule C, that’s considered your gross income from your business. So it’s whatever it is that you collected, the expenses will come later. If you have a cost of materials or you paid electricity, those are the expenses that will come later. But right now, we’re focusing on getting the correct amount of income reported. Now this is extremely important, this is a focus program of the Internal Revenue Service. It is believed that a goodly portion of what’s known as the Tax Gap is created by sole proprietorships who are, either not reporting all of their income, or are inflating their expenses, deducting things that they shouldn’t. So getting the correct amount of income, and the way I recommend of doing this as a professional, is if you have a home business, to have a separate bank account. Look at all of the credits and deposits that went into that account, that generally is gonna be your income. Unless you borrowed money, obviously, borrowed money is not income, but you’ll be able to get a grip of a handle on what you’re total gross receipt should be. Be very careful in self employed businesses where you barter your services. For example, you might be a plumber and somebody else is an electrician. So you go to the electrician’s house and do the plumbing work, he’ll come to your house and do the electrical work, but in effect you collected money for what you bartered away in services. So make sure you correctly report your gross income. Just because you did not get a 1099 miscellaneous, doesn’t mean you leave the income off the return, you still have to report it. And getting an accurate reporting here is very, very important.