How to Report the Personal Property of a Sole Proprietorship Vs. an Owner
A sole proprietorship is the simplest business structure. You don't have to file with the state to set it up, and tax law treats your business income like your personal income. The IRS treats your business assets differently from personal property, however. You can claim deductions or depreciation on business property that you can't claim on personal property. It can be a good idea to have a separate business account so the IRS can see that your business assets are all bought out of business funds.
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Instructions
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Write a list of any property that plays a role on your tax return. That could include inventory; assets you bought, traded or sold during the tax year; assets for which you intend to claim depreciation; and any property you can claim as a business expense. Under Section 179 of the tax code, you may be able to deduct the cost of buying to $500,000 of furniture, computers and other business assets in a given year, rather than depreciating them.
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Report any depreciation you intend to claim on your business assets. The IRS offers several depreciation formulas, but most business use the Modified Accelerated Cost Recovery System. Depreciation allows you to write off the wear and aging that devalue your business equipment over time.
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Calculate your cost of goods sold, if you sell goods. The cost of selling is a deductible business expense. To figure it, you work out how much inventory you sold during the year, then the related expenses such as your materials, supplies and labor that it took to sell them.
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Figure out the gains or losses on any business property you disposed of, including not only sales but swaps, barter, foreclosures, losses of disasters and charitable donations. If you came out with a profit on the deal, you may have to pay tax on it; a loss may be a legitimate tax deduction.
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Report any income or losses from the various sources on the appropriate IRS forms and on your Schedule C. Report your net income or business loss on your 1040. Depending on the circumstances, you may have to carry losses over to future years.
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Tips & Warnings
Keep records for the purchase, use and disposal of your business property. Normally, keeping records three years after you've filed a return is sufficient. If you have business assets subject to capital gains or depreciation, you should keep the records until after you dispose of the assets.
