taxes, deductions, oh my

(Texas)

Forgive me if my questions seem newbie-ish, but I have done some research and cannot find answers, so I turn to you guys.

1. Is there any sort of paperwork required for [to form] a sole proprietorship?

2. If you have not officially incorporated/LLC-ed/or otherwise, can you still claim "business expenses" as deductions on a tax return? For example, if I am running a business and plan to pay taxes on my revenue (but don't have any official regonition by the state), can I still "write off" expenses (such as equipment)?

3. (Please don't laugh...) When you "write something off", what actually happens? Does that lower the amount of taxes you have to pay? If, for example, you owe $1,500 in taxes but have $3,600 in deductions, what becomes of your owed balance? (I am most confused on this point...)

Thanks for your help!

[I AM ALWAYS LIABLE]

My response:

Sure, we could write pages and pages to answer your questions. But, if you went to the library, I'm sure you'd find a book or two on the various subjects in the Business stacks to get your answers also - - and probably in much better detail.

In fact, you'll probably meet a very nice librarian who'd help you.

IAAL

Then I shorten my query to:

If you have not officially incorporated/LLC-ed/or otherwise, can you still claim "business expenses" as deductions on a tax return? For example, if I am running a business and plan to pay taxes on my revenue (but don't have any official regonition by the state), can I still "write off" expenses (such as equipment)?

[I AM ALWAYS LIABLE]

Originally posted by RadioDude
Then I shorten my query to:

If you have not officially incorporated/LLC-ed/or otherwise, can you still claim "business expenses" as deductions on a tax return? For example, if I am running a business and plan to pay taxes on my revenue (but don't have any official regonition by the state), can I still "write off" expenses (such as equipment)?

My response:

Okay, then I'll shorten my response to:

Get your butt out of your chair and go to a library.

We don't have enough information from you with which to give you an answer, or 50. We're not mindreaders. In order to properly answer you, we'd need to write reams in the hope that something we wrote might be correct for your exact situation(s).

Therefore, there are "reams" written on this subject that you can read about at your library. The only difference for you would be either reading it here, or reading it there.

Once you start reading at the library, you'll fully understand why I'm being obtuse. Only then can you understand.

IAAL

[abezon]

1. Most states require you to get some sort of business license, but this is not required for your federal taxes.

2. Yes, you do so on Schedule C. I strongly suggest you hire a tax preparer to do the first year's forms & help you set up your books. You might also take a tax class from H & R Block (the tuition can be deducted as a business expense). This will help you understand the tax laws & how tax returns are structured.

3. You pay taxes (income AND social security/medicare) on net profit. More expenses = lower profits = lower taxes.

4. You may also have state tax concerns (business & occupation tax, sales taxes, state income taxes).

The IRS publishes a small business tax guide & has a small business section on their web site. There are also books on taxes for small businesses.