Steps to Preparing Tax forms for a Sole Proprietor’s Business Loan

Written By Steps To Faculty Published April 30th, 2010

Getting a business loan is a viable alternative for many companies when cash flow has stopped or is running low. To cover business operation costs, such as salaries, shipping, and overhead expenditures such as utilities, many business owners are forced to obtain business loan in some form to sustain the business until cash flows increase. However, like anything else, business loans are a taxable source of income according to the Internal Revenue Service Taxpayers and tax-exempt institutions use tax forms issued by the Internal Revenue Service to record financial information and ascertain taxes to be paid to the federal government.

Determining the correct tax forms to use can be tricky. Depending upon your business, the special forms that are used can make the difference between getting audited and receiving a tax refund. Let’s take a look.

Step 1 Specify your business structure

Businesses file different tax forms depending on whether it is an individual taxpayer or the type of business under consideration such as a sole proprietor or individual with a side business.

Step 2 Complete a 1040

For individuals prior to receiving any type of business loan, he or she must fill Form 1040, United States Individual Income Tax Return. This form has eleven schedules and the following will have to be filled in reference to business loan.

Step 3 Use Schedule B

Use a Schedule B if you receive or pay out interests or dividends.

Step 4 Use Schedule C

A Schedule C shows the loan income and expenses related to sole proprietor. Sole proprietors use Form Schedule C to file incomes and expenses accruing from the business. The owner is taxed on income tax, which is progressive tax as he or she files tax returns an individual.

Step 5 Use Schedule F for loans

Use a Schedule F form if you acquires business loan to finance business operations. In case of tax refunds or loan due to unclaimed deductions, an individual will file Form 1040X.

Remember all tax forms can be found at www.irs.gov/formspubs.


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