Publication Number: 334

Tax Guide for Small Business

(For Individuals Who Use Schedule C or C–EZ)

Introduction

The purpose of this publication is to provide general information about the federal tax laws that apply to small business owners who are sole proprietors and to statutory employees.

A sole proprietor is someone who owns an unincorporated business, including a limited liability company, by himself or herself. A statutory employee has a checkmark in box 13 of his or her Form W–2, Wage and Tax Statement. Statutory employees have to use Schedule C or C–EZ to report their wages and expenses.

To use this publication, you will generally need the following forms.

Form 1040 and its instructions.
Schedule C or C–EZ and its instructions.

See chapter 12 for information on ordering these forms.

Husband-wife business.

If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Do not use Schedule C or C-EZ. You must file Form 1065. For more information on partnerships, see Publication 541, Partnerships.

This publication does not cover the topics listed in the following table.

If you need information about:	You should see:
Partnerships	Publication 541
Corporations	Publication 542
S corporations	Instructions for Form 1120S
Farming	Publication 225
Direct selling	Publication 911
Commercial fishing	Publication 595
Recordkeeping	Publication 583

What you need to know.

Table A (shown later) provides a list of questions you need to answer to help you meet your federal tax obligations. After each question is the location in this publication where you will find the related discussion. Table A. What you need to know about federal taxes

IRS mission

IRS mission.

Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

Comments

Suggestions

Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us while visiting our web site at
www.irs.gov.

You can write to us at the following address:

Internal Revenue Service
Technical Publications Branch
W:CAR:MP:FP:P
1111 Constitution Ave. NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Important Changes for 2001

The following are some of the tax changes for 2001. For information on other changes, see Publication 553, Highlights of 2001 Tax Changes.

Self-employment tax.

The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $80,400 for 2001. For more information, see Self-Employment Tax in chapter 1.

Standard mileage rate.

The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2001 is 341/2 cents a mile for all business miles. See Car and Truck Expenses in chapter 8.

Third party designee.

Beginning with your tax return for 2001, you can check the "Yes" box in the "Third Party Designee" area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to ask any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See your income tax package for details.

Important Changes for 2002

The following are some of the tax changes for 2002. For information on other changes, see Publication 553, Highlights of 2001 Tax Changes.

New tax credit for employer provided child-care facilities.

For tax years beginning after 2001, you can receive a tax credit of 25% of the qualified expenses you paid for employee child care and 10% of qualified expenses you paid for child care resource and referral services. This credit is limited to $150,000 each year. For more information, see Publication 553.

New tax credit for small business pension plan startup costs.

For tax years beginning after 2001, if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension, you can receive a tax credit of 50% of the first $1,000 of qualified startup costs. For more information, see Publication 553.

Health insurance deduction for the self-employed.

For 2002, this deduction is 70% of the amount you paid for medical insurance for yourself and your family. For more information, see Insurance in chapter 8.

Self-employment tax.

The maximum net self-employment earnings subject to the social security part of the self-employment tax increases to $84,900 for 2002.

Important Reminders

Accounting methods.

Certain small business taxpayers may be eligible to adopt or change to the cash method of accounting and may not be required to account for inventories. For more information, see Inventories in chapter 2.

Photographs of missing children.

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child.

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