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Frequently Asked Tax Questions

Small Business, Self-Employed, Other Business - Schedule C & Schedule SE

  1. I am self-employed as a sole proprietor. How do I report my income and pay Medicare and Social Security taxes?
  2. I have run a small business in the past but this year I had no income or expenses from the business. Is it necessary that I file a Schedule C?

Rev. date: 12/18/2014

I am self-employed as a sole proprietor. How do I report my income and pay Medicare and Social Security taxes?

The self-employment tax consists of the Old-Age, Survivors, and Disability Insurance (Social Security) and the Hospital Insurance (Medicare) taxes. The IRS will transmit the information from the Schedule SE to the Social Security Administration to figure your benefits under the Social Security system. See Publication 334, Tax Guide for Small Business.
Certain highly compensated individuals may need to figure and pay an additional Medicare tax on Form 8959 (.pdf), Additional Medicare Tax, in tax years 2013 and later. Please refer to the Instructions for Form 8959 (.pdf).
Note: The federal tax system is a pay-as-you-go plan. Employers generally withhold taxes from employees' wages or salary before they pay them. However, payers generally do not withhold tax from payments they make to self-employed individuals. Thus, you may need to make estimated tax payments. Publication 505, Tax Withholding and Estimated Tax, provides information on making estimated tax payments.

Rev. date: 12/18/2014

I have run a small business in the past but this year I had no income or expenses from the business. Is it necessary that I file a Schedule C?

If your sole proprietorship business has no profit or loss during the full year, it is not necessary to file a Schedule C (Form 1040) (.pdf), Profit or Loss from Business, for that year.
If your business is inactive, but you receive payments such as insurance that relate to the business, you must report those payments on a Schedule C or Schedule C-EZ (Form 1040) (.pdf), Net Profit From Business.