Federal. If your gross self employment income is $400 or more, you are required to file a federal income tax return. If this income is from a sole proprietorship or single member LLC, you include this activity of Schedule C of your regular form 1040 (due April 15th). If your income is from a partnership or multimember LLC, include the income and expenses on form 1065 (due April 15th). If you have a corporation, file form 1120 (for C Corporations) or form 1120S (for S Corporations) (both due March 15th). Please remember that an LLC can be elect to be taxed as a C or S corporation.
State. You will also need to file a state tax return. Most states have income tax returns and your self-employment activity needs to be included there, with your other income and deductions. Your income may also be subject to sales tax and various other state taxes. If you call the department of revenue for your state, they can list the state taxes you need to pay. Most states that collect sales tax have adopted a destination based sales tax. Click on the link at the end of this sentence for a detailed explanation of Washington State’s destination based sales tax.
Cities and other Local Governments. Many Cities and other small jurisdictions also have filing requirements. Most cities will require you to get a city licenses in addition to the state license. Other smaller jurisdictions such as counties and school districts may have filing requirements.
Information Returns (1099s). In the course of your self-employment, if you paid any non-corporate vendor $600 or more during the year, you must issue them a 1099. You are supposed to mail the 1099 to the vendor by January 31. You then have until February 28 to mail copy A of all the 1099s to the IRS, along with copy A of a single 1096. Form 1096 is a summary of all the 1099s you have issued.
Washington State Requirements. In Washington State, you get a business license by completing the master business license application. The Washington State Department of Revenue requires business and self-employed persons to complete the combined sales/excise return. Your frequency in completing this return initially depends on the business type and projected revenue that you put down on the master business license application. You will be required to complete the return annually, quarterly or monthly–although some very low revenue businesses that do not collect sales tax are put on a non-filing basis.
Tax Tip: Be pessimistic when completing your master business license application and you will not need to file as often.
Starting a Small Business – A To-do List