Yeend, Castaneda & Flynn, LLP

Conducting your business as a sole proprietor is one of the simplest forms of operation. It is easy to start the business and it is also easy to discontinue the business.

If you hire employees, you will need to obtain an employer identification number (EIN) by filing Form SS-4, Application for Employer Identification Number, with the Internal Revenue Service. If you do not hire employees, you may use your social security number for filing purposes.

Open a separate checking account for your business. It will be easier to track your deductible expenses if they are not commingled with your personal expenses.

If you incurred expenses prior to opening your business, keep them separate from your other expenses. Special tax treatment applies to start-up expenses.

 

These costs include:

A survey for potential markets, products, or labor; advertisements   for the opening of your business; salaries and wages for training  new employees; and travel and other necessary costs for securing prospective distributors, suppliers, or customers.

 

Purchasing Equipment

Equipment that you purchase for your business is generally depreciated over its class life.

In most cases, this is either five or seven years.

It is important to keep accurate records of the cost of your equipment and the date each piece was purchased.

For equipment purchased in 2003 or later, you are allowed to deduct up to $25,000 of the cost in the year the asset is placed in service. This applies to used equipment as well.

You are not allowed to expense equipment that you purchased from a related party or equipment that you converted from personal use

 

Paying Estimated Tax Payments:

As a sole proprietor, you are responsible for making quarterly estimated tax payments.

This is required to ensure that you are not subject to late-payment-of-tax penalties.

You are required to make estimated tax payments if any of the following apply: