Using Schedule C for Business Taxes
several business types use Schedule C to report their business taxes :
Sole proprietor s are exclusive owners of businesses that have not registered with a submit as another occupation shape – LLC or corporation. These businesses pay tax using Schedule C report business income .
A single-member LLC business pays tax using Schedule C if the business has not elected to pay tax as a corporation or S pot .
A husband-wife clientele organized as a partnership may become a dependent Joint Venture and pay tax using two Schedule C forms rather of using the more complicated partnership kind. There are restrictions and qualifications for this election.
The Schedule C Process: An Overview
- The process for completing Schedule C begins with gathering information.
- Complete the form, adding information and doing the calculations.
- This process will give you a net income or loss amount for your business. Add this amount to your personal tax return, along with other income you received during the year.
- You will also need to calculate self-employment tax payable (Social Security and Medicare for small business owners) if you had income (not a loss) for the year. Add the self-employment tax liability to your tax return.
Changes to Schedule C with the New Tax law
The 2017 tax law ( effective for 2018 taxes and beyond ) made respective changes that affect your business income tax and the means you file schedule C .
- You may be able to use the cash method of accounting and to be exempt from counting inventory and deduct certain expenses instead of depreciating them.
- You may be eligible for the Qualified Business Income (QBI) deduction, and extra 20% deduction in addition to deducting the usual business expenses.
- You can no longer deduct entertainment expenses and the deductions for business meals have changed.
- The regulations for taking business losses have changed, and the tax loss carryback has been eliminated.
Before you try to tackle Schedule C on your own, consider using one of the business tax software programs available, either on-line or in download human body. They will walk you through a set of questions to make sure you do n’t miss anything important. These programs will besides include your Schedule C on your personal tax rejoinder.
Steps to Completing Schedule C
step 1 : Gather information
Business income : You ‘ll need detail information about the sources of your business income. Include returns and allowances .
Prepare a detail profit and Loss statement ( net income Income statement ) to give your tax preparer or to use in preparing your Schedule C. Your business accounting program should have this human body. It ‘s easy to transfer data from this imprint to your Schedule C. Cost of goods sold : If you have an inventory of products for sale, you ‘ll need to gather information for this calculation. You will need :
- Your inventory valuation method
- Inventory value at the beginning of the year
- inventory value at the end of the year
- Cost of labor, materials, and supplies.
Business expenses : Gather information on all business expenses ( they should be in your profit and Loss statement ). Include :
- Phone, utilities, computer expenses, and other office expenses
- Business insurance, like insurance on your business property, and disability insurance,
- Supplies, including office supplies
- Wages you paid. and payments you made to non-employees
- Interest on loans, leases, mortgages, and other business debts
- Meal expenses may only be deductible at 50%. Entertainment expenses are no longer deductible.
- Some expenses are difficult to categorize on a tax return. This is a place for miscellaneous expenses like petty cash on your business tax return, so don’t hesitate to include all of these hard-to-categorize items.
The more legitimate business expenses you include, the lower your tax bill. Do n’t forget these normally missed commercial enterprise tax deductions .
step 2 : Calculate Gross Profit and Income
immediately that you have information on your income and the cost of goods sold, you can calculate your business income and crude profit.
Include the calculations for the monetary value of goods sold. You will have to go to Part III-Cost of Goods Sold to do the calculation. then add the sum in the Income department on Line 4.
- Gross receipts from sales – Returns and allowances = Net receipts
- Net receipts – Cost of goods sold = Gross Profit
- Gross Profit + Other income from tax credits or other sources = Gross income
mistreat 3 : Include Your Business Expenses
occupation expenses that you can deduct are listed alphabetically on lines 8 through 27.
You can deduct depletion, depreciation, and Section 179 expenses, angstrom well as employee benefits and indemnity, including malpractice and property indemnity but not health indemnity .
concern on mortgages and other commercial enterprise debts is deductible, as are legal and professional fees, office expenses, and pension and profit-sharing plans .
You can besides deduct costs associated with the rental or lease of vehicles or other clientele equipment, costs of haunt and alimony, supplies, taxes and licenses, change of location expenses, meals and entertainment, utilities, and wages .
Line 27 is for “ other ” expenses. They include bank fees, uniforms, and invest, dues for clubs and organizations, internet and web site charges, books, magazines, and software, phone, and cell earphone costs .
Use this accomplished tilt of Business Tax Deductions from A to Z to make sure you did n’t miss a deduction. many of these business expenses have restrictions or conditions that must be met before they can be deducted, indeed check with a tax master before you submit your hark back .
Wages, salaries, and payroll tax expenses are deductible costs. The total wages paid, the employer helping of FICA taxes ( Social Security and Medicare ), unemployment policy, and union and state workers ‘ compensation indemnity are all deductible expenses .
step 4 : Include other Expenses and Information
Line 30—business use of your home : If you work from home, you have two options for including information regarding the expense for business use of your home plate :
- Option A involves completing Form 8829, by calculating the total area of your home and getting a percentage for your home business. Include the total allowable expenses resulting from those calculations on line 30 of Schedule C.
- Option B is a simplified calculation: $5 per square foot of home business space up to 300 square feet for a maximum $1,500 deduction. Enter this information in the appropriate sections of line 30. You can only use space that is used regularly and exclusively for your business regardless of how you calculate the deduction.
Part IV—information on your vehicle : This is an information section, with no calculation to add to your Schedule C. You ‘ll need to include information here about business driving mileage, commuting mileage, and other drive mileage.
Line 47a asks if you have tell to support your subtraction. Be certain you are keeping excellent records of business miles traveled and business purpose, in shell of an audited account. This article on an easily way to keep chase of business miles might be helpful. Part V allows you to provide more detail on other expenses you’re deducting. This is the plaza to include your cell phone, internet supplier, and web site expenses, arsenic well as bank charges and early assorted expenses. Try to fit as many of these as possible within lines 8 through 26. The full of these other expenses goes on cable 27.
step 5 : Calculate Your net income
The final examination calculation is for net income :
- Enter total expenses on Line 28 and subtract this amount from Line 7 to get your tentative profit on Line 29.
- Then subtract the expenses for the business use of your home on line 30 to get your net profit or loss on Line 31.
And If You Have a Business Loss
If your Schedule C shows that you have had a occupation loss ( expenses are greater than income ), you must show whether your passing is at hazard or not, on Lines 32a and 32b ( Most small clientele owners have fully gamble if they participate fully in the occupation ). You may have to file Form 461 Limitation on Business Losses if you have a business loss.
last, Add Schedule C to Your Tax Return
Carry the net profit/loss on-line from lineage 31 of your Schedule C to Schedule 1, wrinkle 12 of your form 1040. Add or subtract your income or passing from this business to other income or losses from other businesses, but do not include any wages from an employer .
Don’t Forget Self-Employment Tax
The full net profit on line 31 of your Schedule C is besides used to calculate self-employment taxes to be paid by the owner of the business. If the business has a loss, no self-employment tax is owed. The self-employment tax is calculated on Schedule SE .