A Primer in Taxable Business Income
by ChristineL, Former Moderator
- Created: December 16, 2009, 3:47 pm
No one says that doing your taxes is easy, but being prepared when tax season comes can make the process less painful. When filing your business income taxes, you must report all income - not just income from the sale of goods, services, or property. For small business owners, taxable income falls into a few major categories. The following list is by no means comprehensive, but it provides an easy-to-read reference on taxable income on your small business.
Business Entities: Business investment income is payment associated with the procedures and processes of running and managing your business. You must report income, losses, deductions, and credits of its partners (in a partnership) and shareholders (in an S-Corp). The IRS offers details about entity reporting requirements:
- More information on Partnership income returns
- More information on S-Corporation income returns
Rental Income: Rental income includes the rental of equipment and vehicles. If the primary purpose of rental activity is for income or for profit and you regularly engage in renting, it will likely be classified as a business activity. You can see IRS Publication 535 for more details.
Royalties: Royalties from copyrights and patents are taxable. Literary, musical, or artistic works are generally taxed based on the number of units sold. Intellectual property, which includes patents and copyrights. Royalties from the sale of natural resources can also be taxed, usually in terms of units (barrels, tons, etc). The tax generally applies to the amount you receive when the resources are extracted from your property. The IRS notes there are special rules for coal and iron ore.
Bartered Income: Bartering is the exchange of goods and/or services for other goods and/or services. For example, a daycare owner enrolls the child of a local web designer for free, and in exchange the web designer creates awebsite for the daycare. Even though money doesn't change hands, bartered income is taxable.
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