How to fill out a schedule c?
Are you a Sole proprietor or self-employed who running your own business? If yes, then you must be aware of your tax obligation. Contrary to employees, your tax is not withheld from a paycheck. An independent contractor can either withhold taxed on their income or choose to make quarterly payments to the IRS. Get in touch with professionals like us to prepare your taxes.
What is Schedule C?
The Schedule C is an IRS income tax form for small business owners to compute taxable income. It is part of Form 1040. The sole proprietors are required by the IRS to fill the form to assess- how much their business has earned profit or losses during the years to find out taxes or refunds if applicable.
Who needs to file Schedule C?
Sole proprietors not registered with the state as another business form –LLC or corporation. They are sole owners of their business and use Schedule C to report business income for paying income tax.
A single-member LLC otherwise has not elected to be taxed as a corporation or S corporation files Schedule C to pay tax.
Schedule C Instructions- Things you require to complete the form
- IRS instruction for Schedule C
- EIN Number.
- Profit and loss statement of the year.
- Social Security Number.
- Mileage records
- Inventory Count and valuation at the end of the tax year.
- Receipts or statements for any business purchases, including smaller items and larger items.
Step to fill information in the Schedule C
1. Gather information about business income, COGS, and business expense:
Business Income: You must have complete details regarding sources of income inclusive of returns and allowances. A detailed income statement or P/L statement helps the tax preparer to fill out Schedule C.
COGS: If there is a stock of inventories lying for sale. You will need the following details to value inventory:
- Inventory Valuation Method.
- The value of the inventories at the beginning of the period.
- The value of the inventories at the end of the period.
- Cost of raw materials, labor, and supplies.
Business Expenses: A profit and loss statement must account for all your business expenses. Few examples of business expenses are office supplies, wages, interest on loans and mortgages, phone bills, office rent, etc.
2. Calculation of Gross Profit and Income:
When you have information about income, cost of goods sold, you can do a calculation of income and gross profit. There must be a COGS calculation. Go to Part iii to do the calculation. Add total income on line 8.
Gross receipt from sales minus Returns and allowance = Net receipts.
Net receipts minus COGS =Gross Profit.
Gross Profit Plus other income tax credits = Gross Income.
3. Account your business expenses:
Deductible business expenses are listed alphabetically on line 8 through line 27.
Some deductible expenses are Depletion, depreciation, Section 179 expenses, employee benefits, insurance, interest on mortgages, legal and professional expenses, pension, etc.
Many of these allowable deductions can be availed only after qualifying for a certain condition. So it is advisable to have professional tax experts to help you save tax bills.
4. Account for other expenses and information:
Line 30 –business use of your home. There are two options for reporting the information regarding the business use of your home:
- Complete form 8829 – Calculate the percentage of home business. While calculating includes the total allowable expense from those reported on line 30 of Schedule C.
- Simplified Calculation: The allowable deduction for home business space is $5 per sq. up to 300 sq. feet maximum deduction is $1500. You can enter this information in the given section in Line 30.
- Part –IV information on your vehicle used for business purposes.
- Part V allows you to provide more details on the expenses -including cell phone, websites expense, etc.
5. Calculate the Net Income:
Subtract the total expenses on line 28 from the amount reported on line 7 to get your tentative profit on Line 29. Then, subtract the expense for the home use of business reported on Line 30 to get net profit on Line 31. And if you have incurred a business loss then file Form 461 limitation on Business losses.
