IRS Tax Interactive - Real Planet


	As a sole proprietor, Sara must file an annual income tax return. The federal income tax is a "pay-as-you-go" tax. Sara is required to pay estimated taxes as she earns and receives income during the year. Forms to Use - Form 1040 and Form 1040 (Schedule C) or Schedule C-EZ References - Form 1040 (Schedule C) Instructions and Publication 334 Sara is also required to pay self-employment tax. Sole proprietors pay this tax instead of social security and Medicare tax. Forms to Use - Form 1040 and Form 1040 (Schedule SE) References - Form 1040 (Schedule SE) Instructions and Publication 334 Sara pays her taxes on income by making regular payments of estimated tax during the year. Sara pays estimated tax because she expects her income and self-employment tax to be more than $1,000.00 when she files her return at the end of the year. Forms to Use - Form 1040-ES Publication to Reference - Publication 505

	If Sarah hires employees, she is required to withhold and pay employment taxes. As an employer, Sarah is responsible for withholding income taxes, withholding and paying Social Security and Medicare taxes, and paying unemployment taxes on wages paid to an employee. In addition, Sarah is responsible for reporting certain types of payments made during the year on information returns. Form W-2, Wage and Tax Statement, and 1099-MISC, Miscellaneous Income, are examples of information returns. See Publication 15, Employer's Tax Guide, Form W-2 instructions, and Form 1099-MISC instructions for additional information. Sarah is required to withhold income tax from each employee's wages. Sarah is also required to withhold part of Social Security and Medicare taxes from her employee's wages and pay a matching amount herself. Forms to use: Form 941, Employer's Quarterly Federal Tax Return References: Form 941 Instructions; Publication 15, Employer's Tax Guide and, Publication 15A, Employer's Supplemental Tax Guide Sarah is required to pay FUTA tax from her own funds. Sarah's employees do not pay this tax or have it withheld from their pay. Forms to use: Form 940 or Form 940EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return References: Form 940 Instructions; Publication 15, Employer's Tax Guide and, Publication 15A, Employer's Supplemental Tax Guide
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