Which of the following is true regarding a self-employed individual’s reporting for cash flow?

A self-employed individual must always include personal tax liabilities in their cash flow reporting because their overall financial health is intertwined with both business and personal financial obligations. When assessing cash flow, it's essential to consider all sources of income and expenditures, including any taxes owed, as these liabilities affect the individual's net income.

In the context of self-employment, an individual is responsible for paying self-employment tax, which constitutes a significant part of their personal tax liabilities. Since these taxes are often calculated based on their business income, they must accurately reflect these obligations in their cash flow to gain a truthful picture of their financial status. This thorough approach ensures that the individual does not underestimate their cash outflows, which can lead to potential financial headaches in the future.

Considering the other options, the idea that self-employed individuals report only business income is not comprehensive, as personal tax liabilities need to be accounted for financial clarity. Utilizing Form 1040 exclusively is also misleading since while Form 1040 is used for individual reporting, self-employed individuals may attach other schedules like Schedule C for business income. Lastly, while individuals can choose what financial statements to provide, they must still ensure that all relevant information, including tax liabilities, is included in their reporting for an accurate cash