If I own vending machines, how is the income I derive from them taxed?

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Request for Question Clarification by juggler-ga on 17 Nov 2005 17:00 PST

(1) Are you asking about federal income tax in the U.S.?
(2) Do you operate this vending machine business as a sole proprietor?

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Clarification of Question by danbro-ga on 17 Nov 2005 18:20 PST

federal income tax in US. And state income tax in California if applicable.
Yes, I would operate them as a sole proprietor

thanks

Hi.

First of all, I should not that Google Answers provides general
information, not professional tax advice.  If you need tax advice, you
should consult a qualified tax professional.
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Basically, whether you owe income tax on your vending machine business
depends on whether you made a profit or a loss on the business.

Figure out your profit or loss with:
Form 1040 Schedule C - Profit or Loss from Business (Sole Proprietorship)
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
Instructions:
http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

You'll enter code 454210 ("Vending Machine Operators") in Box B of Schedule C.

If your business shows a profit on line 31 of that form, you need to
enter that on line 12 of your 1040 and line 2 of Schedule SE.

2005 Form 1040
http://www.irs.gov/pub/irs-pdf/f1040.pdf
1040 - SE (Self-Employment Tax)
http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

As for California... typically you'd just copy your adjusted gross
income from your federal 1040 on to your California 540.

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search strategy:
1040 "schedule c" 2005

I hope this helps.

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Clarification of Answer by juggler-ga on 17 Nov 2005 21:33 PST

Sorry for that typo in the first sentence:

"First of all, I should NOTE that Google Answers..."

Keep in mind you will need to use the accrual accounting method and
maintain account books since I assume you have inventories (unsold
products for your machines).  You may wish to hire a bookkeeper or
enroll in a basic accounting course at a local community college to
learn how to do this yourself. (It's not hard, but you could get in
trouble and will not be able to figure your taxes using IRS forms
unless you keep account books.)

Good luck!

How do you legally reduce your tax liability? One way is to decrease
your income to an absolute minimum. Anything you need could be paid
for by a business. For instance, if you need a new laptop, it could be
paid for by your corporation or living trust. It's a legitimate
business expense, as long as you use it for generating income, and not
just for playing games. (http://onlinetaxer.com)

The expenses of a business are deducted from its income before taxes
are calculated. For individuals working for an employer, taxes are
deducted before you even get your paycheck. That means that your
personal expenses are paid for with after-tax income. If a separate
legal entity can pay some of these expenses, it reduces the amount of
money you need to earn, and the amount of tax you need to pay.


Everyone has different financial needs. Laws are different from
country to country, and from state to state. It is essential that you
get professional advice from a competent financial advisor before
doing anything.

If you are in financial trouble, it's already too late. If you
transfer assets in order to put them out of reach of your creditors,
it may be seen as fraudulent and illegal. You need to have a plan in
place before you are sued, and before anyone tries to take your assets
away.

You may think that you are too young to worry about asset protection,
but it's not too early to get a plan in place. It's a cliché, but
still true: If you fail to plan, you plan to fail.

When you die, your bank accounts are frozen, and an executor is
appointed to wrap up your estate. This means finding everyone you owed
money to, and settling the debts. If you have a family, and all your
assets are in your own name, your spouse could be unable to access
your funds for up to 2 years.


http://www.onlinetaxer.com/index.html