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Sole proprietorship: You’re on your own

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in Small Business Tax,Small Business Tax Deduction Strategies

Q.  I may set up a second business from home as a sole proprietorship. Do I have to pay myself taxable wages? A.S., Portsmouth, NH

A.  No. As a sole proprietor, you don’t receive any salary. Instead, you compute your net profit or loss from the business on Schedule C. If you show a profit, it is subject to income tax and self-employment tax (as opposed to employment taxes for regular employees). Make sure to pay income tax on a quarterly basis to avoid estimated tax penalties.

Tip: Employment taxes paid from a job can effectively reduce the self-employment tax you will owe.

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