Overview of Tax Forms for Sole Proprietorship

There is no reason for small businesses, like sole proprietorships, to panic about filing taxes and paying taxes when tax season rolls around. There are specific tax forms for each type of business entity.

If you have kept even reasonably good business tax records during your tax year using your accounting software or your accounting information system, then you have everything in place to prepare your income taxes for the previous year. Before filing your taxes, you also need to be aware of the type of accounting you use for your business. Do you use cash or accrual accounting? That makes a difference when filing taxes.

The form of business organization that you have chosen will determine the type of tax form you will use for filing and paying your taxes. Determine whether your business is a sole proprietorship, corporation, partnership, ​S corporation, or limited liability company.

Your form of accounting, tax year, and type of business entity help determine what forms you use to file your federal business taxes and pay your taxes. The type of business entity is the most important factor in determining the tax form(s) that you file. Every type of business entity is liable for a number of different types of taxes.

If you are a sole proprietor that has not incorporated, then you would use the following forms for the indicated types of tax.

Income Taxes for Sole Proprietorship

IRS Form 1040 is the form used by individuals and, thus, by unincorporated sole proprietorships since they file under the same forms as their owners. IRS Schedule C is the profit and loss statement for the business.

Estimated Taxes

Since businesses that are sole proprietorships file taxes with the owner, this is the appropriate form for the sole proprietorship. Unless the sole proprietorship anticipates taking a loss, it should file estimated taxes or face paying penalties and interest.

Self-Employment Tax

Self-employment tax is the Social Security and Medicare tax that has to be paid by self-employed individuals. It is the same as the Social Security and Medicare taxes withheld from an employed individual's paycheck.

Employer's Share of Social Security, Medicare, Income Tax Withholding

Employers can elect to file Form 941 instead of 944 if they notify the Internal Revenue Service (IRS) of this choice. The IRS will notify the employer if they should file Form 944 instead.

File IRS Form 941 each quarter if you are an employer for wages and tips paid, federal tax paid, and both employer and employee social security and Medicare paid.

Federal Unemployment Tax (FUTA)

You must file IRS Form 940 if you paid wages of $1,500 or more to employees in any calendar quarter or if you had at least one employee for part of a day in any 20 or more different weeks.

W-2 Wage and Tax Statement to the Employees

Employers should furnish employees W-2 Form by January 31 of each calendar year.

W-3 Wage Transmittal

Employers must file a W-3 Wage Transmittal with the Social Security Administration when they file W-2s.

IRS Form 1099-MISC

If you, as an employer, have paid someone who is not an employee, but someone who is doing temporary work-for-hire for you more than $600 during the calendar year, then you have to file a Form 1099-MISC for each of these individuals. There may be other forms you have to file with the IRS due to special situations.