Taxes are simple when you’re a sole proprietor in California because you and your business are one and the same for tax purposes. You don’t need to pay taxes or file tax returns separately for your California sole proprietorship. California taxes you, the owner, on the income you earn from your business, instead.
Instead, you report the income that you earn, or the losses that you incur, on your personal tax return (IRS Form 1040).
If your business earns a profit, you’ll add that money to any other income that you have. Other income can be interest income or your spouse’s income if you’re married and file jointly. You’ll get your total income that will be taxed at your personal tax rate.
If you incur a loss, you can use it to offset income from other sources.
To show whether you have a profit or loss from your sole proprietorship, file IRS Schedule C, Profit or Loss from Business, with your tax return. On the form, list all of your business income and your deductible expenses.
Just remember that, if you have more than one sole proprietor business, you must file a separate Schedule C for each.