The business structure of a sole proprietorship needs a single individual to run it. A sole proprietorship is easy to set up and is the least costly of the four entities. With this business structure, the individual and business are legally the same.
As all the business profits go to the owner, so will all the debts. Owner files the business expenses and income on Schedule C of their Form 1 (Personal Income Tax Return). Owner pays self-employment tax on all business profits and may pay more in taxes than other entities. The person who owns the business is responsible for all of its obligations, and if someone sues the company, the owner's personal assets are potentially at risk, which is the biggest downfall to owning a sole proprietorship, and its official name is unlimited liability.
Yet, you will have no partners to contend with, and the owner has control of the business. The law does not need you to have a formal business structure set up before launching it.
Sole proprietors who will be collecting Business/Trustee Taxes need to:
- Register with MassTaxConnect
- View the Sole Proprietorship video.
- Pay Massachusetts personal income tax on business profits
- File Form 1, Massachusetts Resident Income Tax Return, or Form 1-NR/PY, Massachusetts Nonresident/Part-Year Resident Income Tax Return annually
- File a Schedule C, Profit or Loss from Business or Profession, with the Form 1 or Form 1 NR/PY for each business owned, on or before the 15th day of the fourth month after the close of the business's taxable year.
Nonresidents can visit the Massachusetts nonresident regulation, 830 CMR 62.5A.1: Nonresident Income Tax for more information.
Keep in mind: A husband and wife running a business together are considered a partnership, not a sole proprietorship.
Making estimated payments
As a taxpayer, you must make quarterly estimated tax payments if the expected tax due on your taxable income not subject to withholding is more than $400. This is to ensure that you are meeting the statutory requirement that taxes due are paid periodically as income is received during the year.
Generally, you need to pay at least 80% of your annual income tax liability before you file your return for the year through withholding or by making quarterly estimated tax payments on any income not subject to withholding.
Farmers and fishermen generally need to pay at least two-thirds (66.67%), rather than 80%, of their annual income tax liability before the year's return is filed. You qualify as a farmer or fisherman for any taxable year if your gross income from farming or fishing is at least two-thirds (66.67%) of your annual gross income.
You must pay estimated tax if you are:
- An individual and you expect to have a tax due of more than $400
- Filing for a fiduciary, trust, or non-profit organization and you expect to have a tax due of more than $400.
Types of income you may not have had taxes withheld from:
- Salaries and wages from employment not subject to Massachusetts withholding
- Unemployment compensation (if you did not elect voluntary Massachusetts withholding)
- Dividends and interest income
- Gains from the sale or exchange of capital assets
- Income from a trade, business, profession, partnership, or S corporation
- Income from an estate or trust
- Certain lottery or gambling winnings
- Income from certain pensions or retirement savings plans
- Rental income
Calculating and paying estimated tax
Individuals and Fiduciaries can make estimated tax payments online through MassTaxConnect.
Paying online through MassTaxConnect allows you to:
- Have 24/7 access to view your payment history
- Make estimated payments and immediately confirm that DOR has received your payment
- Schedule payments in advance and cancel or change scheduled payments if needed.
Before making an estimated payment, you can calculate your payments online with DOR's Quarterly Estimated Tax Calculator.
Individuals and Fiduciaries which are not required to pay online may choose to calculate and pay with:
- Form 1-ES: 2023 Estimated Income Tax Payment Vouchers, Instructions and Worksheets
- Form 2-ES: 2023 Estimated Tax Payment Vouchers, Instructions and Worksheets for Filers of Forms 2 or 2G
If paying by check, you must include Form 1-ES or Form 2-ES and mail your payment to:
|Massachusetts Department of Revenue
PO Box 419540
Boston, MA 02241-9540.
|Massachusetts Department of Revenue
PO Box 419544
Boston, MA 02241-9544.
Each installment is generally 25% of the required annual payment, and is due as follows:
|Due date of installment
|On or before April 18, 2023
|On or before June 15, 2023
|On or before September 15, 2023
|On or before January 16, 2024
Visit DOR Personal Income and Fiduciary estimated tax payments to learn more.