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Publication 334 (2009), Tax Guide for Small Busine
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 Posted 12:06 PM Feb. 28, 2010 Publication 334 (2009), Tax Guide for Small Business http://www.irs.gov/publications/p334/index.html Table of Contents
Table of Contents The purpose of this publication is to provide general information about the federal tax laws that apply to small business owners who are sole proprietors and to statutory employees. This publication has information on business income, expenses, and tax credits that may help you file your income tax return. Are you self-employed? You are self-employed if you carry on a trade or business as a sole proprietor or an independent contractor.
Sole proprietor. A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.
Trade or business. A trade or business is generally an activity carried on to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need to make ongoing efforts to further the interests of your business.
You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business may be self-employment.
Independent contractor. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether they are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or to direct only the result of the work and not how it will be done. The earnings of a person who is working as an independent contractor are subject to self-employment tax. For more information on determining whether you are an employee or independent contractor, see Publication 15-A, Employer's Supplemental Tax Guide.
Statutory employee. A statutory employee has a checkmark in box 13 of his or her Form W-2, Wage and Tax Statement. Statutory employees use Schedule C or C-EZ to report their wages and expenses.
Limited liability company (LLC). A limited liability company (LLC) is an entity formed under state law by filing articles of organization. Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. An owner who is an individual may use Schedule C or C-EZ.
Husband and wife business. If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Do not use Schedule C or C-EZ. Instead, file Form 1065, U.S. Return of Partnership Income. For more information, see Publication 541, Partnerships.
Exception—Community income. If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U.S. possession, you can treat the business either as a sole proprietorship or a partnership. The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A change in your reporting position will be treated as a conversion of the entity. Exception—Qualified joint venture. If you and your spouse materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be taxed as a qualified joint venture instead of a partnership. To make this election, you must divide all items of income, gain, loss, deduction, and credit between you and your spouse in accordance with your respective interests in the venture. Each of you must file a separate Schedule C or C-EZ.
This publication does not cover the topics listed in the following table.
What you need to know. Table A (shown later) provides a list of questions you need to answer to help you meet your federal tax obligations. After each question is the location in this publication where you will find the related discussion.
Table A. What You Need To Know About Federal Taxes
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The following are some of the tax changes for 2009. For information on other changes, go to www.irs.gov, and click on Forms and Publications. Then, click on What's Hot in forms and publications. Self-employment tax. The maximum net self-employment earnings subject to the social security part of the self-employment tax increases to $106,800 for 2009. Optional method to figure net earnings. For tax years beginning after 2007, the amount of gross and net income from self-employment you may have when using the nonfarm optional method or the farm optional method to figure your self-employment tax has increased. This allows electing taxpayers to secure up to four credits of social security benefits coverage. In future years, the threshold will be increased to maintain that level of coverage. See chapter 10 for more information. Section 179 deduction dollar limit. For tax years beginning in 2009, the maximum section 179 expense deduction is $250,000 (higher limits apply to certain property). For more information, see Depreciation in chapter 8. Standard mileage rate. For 2009, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business miles is 55 cents per mile. For more information, see Car and Truck Expenses in chapter 8. Additional tax relief for businesses affected by the Kansas storms and tornadoes. Special rules not covered in this publication may apply. For more information, see Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes. Additional tax relief for affected businesses in the Midwestern disaster areas. Special rules not covered in this publication may apply. For more information, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Additional tax relief for businesses affected by federally declared disasters. Special rules not covered in this publication may apply. For more information, see Publication 547, Casualties, Disasters, and Thefts. The following are some of the tax changes for 2010. For information on other changes, go to www.irs.gov, and click on Forms and Publications. Then, click on What's Hot in forms and publications. Self-employment tax. The maximum net self-employment earnings subject to the social security part of the self-employment tax remains at $106,800 for 2010. Standard mileage rate. For 2010, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for business miles is 50 cents per mile. For more information, see Car and Truck Expenses in chapter 8. Accounting methods. Certain small business taxpayers may be eligible to adopt or change to the cash method of accounting and may not be required to account for inventories. For more information, see Inventories in chapter 2. Reportable transactions. You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. You may also have to pay interest and penalties on any reportable transaction understatements. Reportable transactions include:
For more information, see the Instructions for Form 8886. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Table of Contents This chapter explains the business taxes you may have to pay and the forms you may have to file. It also discusses taxpayer identification numbers. Table 1-1 lists the benefits of filing electronically. Table 1-2 lists the federal taxes you may have to pay, their due dates, and the forms you use to report them. Table 1-3 provides checklists that highlight the typical forms and schedules you may need to file if you ever go out of business. You may want to get Publication 509, Tax Calendars. It has tax calendars that tell you when to file returns and make tax payments.
 Publication
Form (and Instructions)
See chapter 12 for information about getting publications and forms. This section explains three types of taxpayer identification numbers, who needs them, when to use them, and how to get them. Social security number (SSN). Generally, use your SSN as your taxpayer identification number. You must put this number on each of your individual income tax forms, such as Form 1040 and its schedules.
To apply for an SSN, use Form SS-5, Application for a Social Security Card. This form is available at Social Security Administration (SSA) offices or by calling 1-800-772-1213. It is also available from the SSA website at www.socialsecurity.gov.
Individual taxpayer identification number (ITIN). The IRS will issue an ITIN if you are a nonresident or resident alien and you do not have and are not eligible to get an SSN. In general, if you need to obtain an ITIN, you must attach Form W-7, Application for IRS Individual Taxpayer Identification Number, with your signed, original, completed tax return and any other required documentation and mail them to the following address.
Employer identification number (EIN). You must also have an EIN to use as a taxpayer identification number if you do either of the following.
If you must have an EIN, include it along with your SSN on your Schedule C or C-EZ. You can apply for an EIN:
New EIN. You may need to get a new EIN if either the form or the ownership of your business changes. For more information, see Publication 1635, Understanding Your EIN.
When you need identification numbers of other persons. In operating your business, you will probably make certain payments you must report on information returns. These payments are discussed under Information Returns, later in this chapter. You must give the recipient of these payments (the payee) a statement showing the total amount paid during the year. You must include the payee's identification number and your identification number on the returns and statements.
Employee. If you have employees, you must get an SSN from each of them. Record the name and SSN of each employee exactly as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. This may occur if the employee's name was changed due to marriage or divorce.
Form W-4, Employee's Withholding Allowance Certificate, is completed by each employee so the correct federal income tax can be withheld from their pay. If your employee does not have an SSN, he or she should file Form SS-5 with the SSA.
Other payee. If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. If you must report payments to an organization, such as a corporation or partnership, you must get its EIN.
To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. A payee who does not provide you with an identification number may be subject to backup withholding. For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns (1098, 1099, 3921, 3922, 5498, and W-2G).
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