1. What is the difference between a business and a hobby?

A business operates with an intent to make a profit and taxpayers have the skills to operate the business. A hobby in an activity a taxpayer operates because they enjoy it but there is no intent to make a profit. Income from both a business and a hobby are taxable. However, expenses for a hobby are not deductible.

2. What kind of recordkeeping system do I need for my business?

You can use any type of recordkeeping system but you need to maintain documentation supporting your income and expenses. The system used depends on the size and complexity of the business. If you have a small number of transactions, you could use a spreadsheet program to track your transactions. However, if your business is more complex, you may consider using a bookkeeping program such as Quickbooks.

3. Do I need an Employer Identification Number for my business?

No. If you are a sole proprietor and are not required to file payroll taxes, you can use your social security number for your tax return.

4. I am a single member LLC. Is a separate tax return required?

No. Single member LLCs can include their business income and expenses on Schedule C of their 1040.

5. What is the standard business miles rate?

58.5 cents per mile for the first 6 months of 2022. Beginning July 1, 2022 the rate has increased to 62.5 cents per mile for the final 6 months of 2022.

6. Can I deduct business meals?

Yes, there must be a business intent to the meal. Appropriate documentation must be maintained for your records of the meal. You must document the date, place, participants, and business purpose of the meal. Only 50% of the expense is deductible.

7. Can I deduct business use from my home?

It depends. The space in the home you use for business must be exclusively used for business. It must also be the only place you can carry on your business.

8. Do I need to pay self-employment tax?

If your net earnings from your business was $400 or more, you owe self-employment tax. The tax is 15.3% and represents both the employers and employee portion Social Security and Medicare tax. This tax is in addition to federal income tax on the net earnings.

9. Do I need to make estimated tax payments?

It depends. If you have enough income from your business to be subject to a tax liability but have not had any other federal tax withholding, you should make estimated payments. The payment dates are the same as for individuals if including your business on your personal tax return.

10. Does adding my business to my personal return make it complicated to prepare?

Yes. The better organized the information is, the more efficiently the return can be prepared. There are certain required schedules to be included depending on the type of business so having your records organized helps improve this process.