Individual U.S. taxpayers who have a small business that is neither partnership or a corporation will need to file a Schedule C form at least once per year. The form shows the IRS what you made, what your deductions were, and fulfills the requirements for sole proprietorships who need to file annual or quarterly statements.
Here are the key facts you need to know about filing a Schedule C with the IRS:
What the Form Asks About
On the Schedule C, you'll need to list all the income from the operation of the business during the calendar year for which you're filing. Note that depending on your income level, the IRS might require you to file each quarter. In either case, you must not only report all income sources but also have to list each of the allowable expenses you had that were "directly" related to the business.
At this point, the instructions are rather clear, so you simply need to note all income and expenses. For vehicles used in a business, you can either take the per-mile rate or figure the exact amount of money you spent on the business vehicle. In almost all cases, it will be to your advantage to use the standard mileage rate.
There's also space on the form for you to list assets you acquired during the year, like computers, appliances, vehicles, etc. Finally, you might be able to take the "home office" deduction if you have a dedicated space in your home where you work. The IRS has simplified this portion of the form so that you can figure the deduction based merely on the square-footage of your work space.
Records You'll Need for Filing
If you are a sole proprietor, be careful to maintain hard-copy or digital records of all business vehicle expenses, asset purchases, expenses, and basically all monetary income and outflow for the business year.
Don't Forget About Self Employment Tax
If you have a gain from operating the business, you will need to also file a Schedule SE, which helps you calculate your "employer" portion of Social Security and Medicare taxes. This form is a bit tricky, so it's a good idea to hire a professional tax preparer to make sure you get all the data in the right place.
Know Whether You Can Use the EZ Version
In cases where your total deductions are below the $5,000 level, you can usually file a shortened version of the Schedule C, known as the C-EZ. Ask your tax professional if you qualify for filing the EZ, and whether it is a good idea for you to do so.
Get Professional Help With Your Taxes
Individuals who own small businesses and need to file a Schedule C form should seek professional assistance. There's no reason to miss out on deductions, or to make a costly error.
Written by Tax Professionals