So you’re finally going to take that big leap and jump into the business ring. Beginning a solo business venture requires a lot of planning, especially when you consider the self-employed (or other entity selection) taxes.
If you start your business this year, you will want to get ahead of the game by looking at next year’s tax picture. To do that, you need to become acquainted with the Schedule C tax form.
What is a Schedule C form?
The Schedule C form is a government tax document. If your business generates profit or income, you will need to fill out the document and file it as an add-on to your 1040 tax form.
Other uses for Schedule C include:
- Deductions and income disclosures for joint projects.
- Stating expenses and wages of a legal worker.
- Reporting indisputable income on the 1099-MISC, a form to report royalties,rents, awards, prizes and other fixed income.
Here is a list of who must fill out and submit the Schedule C document, reporting profits or losses:
- unincorporated firms
- sole proprietor owners
- multiple sole-proprietorships
- owners of single-member LLCs (Limited Liability Companies)
- co-owners (partners) of business ventures
NOTE: When a business compiles expenses of $5,000 or less, it is possible you may qualify to file Schedule C-EZ instead of Schedule C.
What is a Schedule C form?
Schedule C tax form can be viewed as a five-part process that allows you the business owner, to reveal your profits or losses.
Part 1: Use this part to compute and report your gross income or profits. On line 1, put your gross receipts. From this figure, subtract the cost of goods sold, allowances and returns.
Now, you have your gross income. On line 5, put your gross income. If you have any other income, add it to this number on line 5. Put this figure on line 7.
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Part 2: This part is used to state your net profit or loss after expenses. First, state your expenses categorically on lines 8-26. Next, add up the listed expenses incurred and put the total on line 28.
Now, from your gross income, subtract total expenses to arrive at your tentative income. Report this figure on line 29.
Next, on line 30, report any expenses incurred for the use of your home as a business base. Now, subtract the number on line 30 from l the figure on line 29 to get your net profit or loss. This figure is to be reported on line 31.
Part 3: Use this part if buying or selling or generating inventory was a component in the production of income. The cost of goods sold should be put on line 42.
Part 4: This part is for claiming expenses incurred from the use of vehicles. NOTE: This figure goes on line 9 of Part II of the form.
Put the date the vehicle was put into use for the business on line 42. The number of miles driven for business use goes on line 44.
Part 5: Put common, but necessary expenses not already stated on lines 8-26.
There it is. All your ever needed to know about the Schedule C tax form.