Your favorite creative pastime has become a side hustle or even your primary source of income, but is it still just a hobby or a business, and what does that mean for your taxes? The following will help you determine if you need tax and accounting services for small businesses.
Is It a Business?
Consider the following questions to determine if you need online accounting services for small businesses:
- Do you intend to make a profit?
- Do you rely on the income to cover your living expenses or financial obligations?
- Have you previously made money doing something similar?
- Are you operating with losses and gains in mind?
- Do you have a reasonable expectation that you will continue to profit from this activity in the future?
If you answered yes to these questions, you should start considering your hobby as your business, which means you need to consider the taxes your business will incur. This determination will depend largely on the type of corporation you file under.
Corporations
When officially creating your business, you have several options, each with different tax obligations.
- Sole proprietorship: There is no legal distinction between you and your business. Your business income will be filed with your personal tax return, and you’ll pay personal income tax on your business profits.
- Partnership: This type is similar to a sole proprietorship but with extra owners. If you have a partner in your business, you’ll both report your profits and losses on your tax returns.
- Limited Liability Company (LLC): An LLC is a separate legal entity from you to protect your assets if your business has difficulties. You’ll be taxed similarly to a sole proprietorship/partnership, but your income outside the company won’t be included.
- Corporation (C- or S-Corporation): Corporations pay income tax, not personal income. The federal corporate income tax was 21 percent as of 2022. Corporations are a great option if you’re looking to grow your business by attracting shareholders.
Seek Professional Help
Taxes are complicated. Your best option will likely be using tax and accounting services for small businesses. They’ll know how to file your taxes and save you the most money, which you can invest back into your business.
Check out JBB & Associates, LLC for all your tax and accounting services for small businesses.
