Taxing Small Business

It's your job to make sure you report all income. Remember, the other companies that pay you will report those payments to the IRS as an expense of their business. When the IRS matches those returns, you can be sure they'll be asking why you didn't report that income!

Deductions are the other side of your tax ledger. The TurboTax program will help you determine which of your expenses you can write off against that income. The program is actually organized by industry type. So if you're selling handcrafted artwork, it might have a prompt to enter the cost of goods. Less obvious deductions might include the proportionate use of your home telephone, or the potential of a home office deduction.

Once you've completed Schedule C, you can move on to the more traditional 1040 form. If, for example, both you and your spouse have income from a job, you'll enter those figures from your W-2. Your traditional deductions such as mortgage interest, charitable contributions, and childcare expenses will all go on the appropriate lines.

Now, with a click of your mouse, you get to merge your two existences as a wage-earner and an entrepreneur to create your tax return.

If your small business lost money, you can offset that loss against your ordinary income. And if your business lost even more than your income from other sources, it's considered a "net operating loss", which can be carried back two years, and can be carried forward 20 years, until the entire loss has been offset against your other income.

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