If you are self-employed, a sole proprietor, or a partner is a partnership or LLC, you pay taxes on the income earned. You can also make business deductions on a Schedule C. You can report either on a cash basis or an accrual method. If you report your income on a cash basis, you deduct all expenses and report income as the cash is received. Under the accrual method, you report income that has been earned, whether or not received. If you are self-employed, you must use the same taxable year for both your business and nonbusiness income.