Are you thinking about starting your own small business? In a constantly evolving work landscape, becoming your own boss may be the key to navigating the future and helping ensure a stable income. 

But, becoming an entrepreneur comes with a lot of new questions. Key among these is how it will affect your finances over the next few years To help you understand and make the most of your new business's impact on your wallet, here is a quick guide to how it will change your taxes.

Regular Income Tax

Business income for entrepreneurs is currently taxed at the same rate as income from regular jobs, although that may change in future tax reform plans. This means that you will owe income tax as usual on your entire pool of earned income and can use your withholding from a wage earning job to pay toward your overall tax bill. 

The good news about having to pay taxes on your business income is that you can reduce your taxable income using business expense deductions. For many new business owners, the additional costs of starting up a new business mean that they actually end up with a loss during some years. And a business loss can lessen your overall taxes, even if you have other jobs. 

Self Employment Tax

The most obvious change on the personal taxes of an entrepreneur is the addition of the Self Employment Tax. This tax replaces the deductions for Social Security and Medicare that are taken from employee paychecks. It's currently 15.3% and is assessed on Form 1040 when filing your personal income taxes. Self Employment Tax is higher than FICA taxes on employee wages because you must pay both the employer and employee portions of the tax. 

New Forms

Depending on what type of business you start, you'll have to file a few new types of forms when doing your taxes. Most sole proprietors, members of LLCs, and partners must declare their business income (or loss) on Schedule C and attach it to their taxes. To complete Schedule C, you'll need to keep a record of all business income from all sources as well as any allowable business expenses. The IRS provides information on what expenses are allowed to be deducted in Publication 17. 

If you go into one of several specialized types of business, you may need to fill out a different schedule to declare your income. These include Schedule E for landlords, Schedule F for farms, and Schedule B for investors. If you're not sure how to complete any of the business forms—especially during your first year in a new business—it's a good idea to work with an accountant with experience in tax preparation. 

By knowing how your new venture will change your income tax obligations, you can make better and smarter decisions right from the start. And then, you can focus on making that new enterprise a success. For help with preparing your business taxes, contact an accountant at a company like Hough & Co CPA .

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