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Department of Taxation and Finance

Income Tax Considerations

Income Tax Considerations

As a self employed individual there are certain things you need to be aware of when filing your taxes. 

Keep in mind that when you’re a sole proprietor, you and your business are one and the same for tax purposes. You don’t pay taxes or file tax returns separately for your sole proprietorship. Instead, you report the income you earn on your own personal tax return.

You must report all income

You must report all income you receive during the year to the New York State Tax Department no matter how you receive it—by check, cash, direct deposit, prepaid card, or any other method. Your income may or may not be reported to you on Form W-2 or Form 1099.

Filing Schedule C

Instead of just reporting your income from wages, salaries or tips on your tax return you will determine your business income or loss and report that on your return. 

You will use the Federal 1040, Schedule C  profit or loss from Business (sole Proprietorship) for this purpose. The form will help you list your income, expenses, cost of goods sold, and other expenses and will determine your businesses profit or loss.

Claiming tax deductions

It’s very important for you to keep track of all the deductible tax expenses you incur throughout the year since they will decrease the amount of profit you’ll have to pay tax on. You can only take deductions related directly to your self-employed or business activity. Deductions may include:

  • Advertising
  • commissions and fees paid
  • mileage traveled
  • Parking and tolls paid
  • Interest on a car loan (if you use the car for personal and business use)
  • supplies (used for you self-employed or business activity)
  • Office expense
  • Mortgage (paid to banks, etc.)
  • Insurance (any extra insurance coverage you obtain for your business)
  • the cost of your cell phones (100 percent deductible if you use it just for business, otherwise you can deduct the business use percentage)
  • Repairs and maintenance
  • Taxes and licenses

You may not deduct the following as business expenses:

  • clothing or laundry expenses, unless you have a mandated uniform
  • meals not connected to business travel outside your metropolitan area (35 miles)
  • commuting or travel expenses; and
  • tickets or summons

If you follow the tips in the How to keep good books and records section, reporting the information on your Schedule C should be easy as you will have details of all your transactions. 

Don’t forget your estimated payments

Come tax time, it’s important to remember what estimated tax payments you made.  If you have an online service account, there is a record of those payments available for you to use when filing your return. 

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