Profit or Loss from Business (Sole Proprietorship) Schedule-C
It could be a confusing situation about reporting your self-employment income (1099 NEC) along with your employment income (form W2).
Determining your self-employment income tax reporting, in other words it is called as profit or loss from a business reporting to be submitted with the Internal Revenue Service & State Income Tax Departments is quite a bit confusing task. We have tried our best to make you aware about your employment & self-employment income tax reporting and claiming some of the deductions on Schedule C.
What Are The Types Of Business Entities?
You can incorporate below entities as per your eligibility, no of partners, and investment capacity.
- Sole proprietorship (tax return schedule c)
- Partnerships (tax return 1065 / schedule c)
- Limited liability partnerships (llp) (tax return 1065)
- Married couple businesses (tax return schedule, schedule se)
- C corporations (tax return 1065)
- S corporations (tax return 1120s, k1)
- Limited liability companies (llc) (tax return 1065)
- Personal service corporations
- Farmers and fishermen (schedule f, schedule se)
- Tax exempt organizations (nonprofit entities) (form 990, form 1023)
Who Can File Schedule-C?
A business which is owned by a single owner (proprietor) though the business is unincorporated or a legal entity can choose to file schedule C.
Schedule-C Form Details?
Schedule c consist of five parts, accordingly need to mention the below required details on line items.
Part 1: Consist of income from Sales or Gross receipts and your earned income through form W2.
Part 2: Consist of Expenses related to your Business like: Advertising, truck and car expenses, fees and commissions, contract labor expenses, depletion, depreciation, employee benefit programs, insurance, interest, mortgage interest, professional and legal services, office expenses, Pension and profit sharing plans, rent or lease of vehicles machinery and equipment for business, repairs and maintenance, supplies, licenses and taxes, meals and travel, utilities, wages and other expenses.
Part 3: Consist of cost of goods sold.
Part 4: Your vehicle information.
Part 5: Other expenses.
Can I Use Employer Identification Number (EIN) To File Schedule-C?
You can either use your SSN or EIN, if you are concerned about data security you can use EIN if your business is sole proprietorship.
What Is The Difference Between Employment & Self-employment Income?
Employment Income: Employment Income is an Income earned by wages and the source tax is Form W2 which is issued by the employer, the tax return form is 1040 and amended tax return is form 1040X.
Self-Employment Income: Working self as an individual contractor, freelancer or operating business for profits, the source tax document is 1099 NEC which is issued by the payer, and the tax return form is Schedule C.
Can We Choose To File Form Schedule-C Though Ours Is a Partnership Firm?
You can choose to file form schedule C if you are an individual owner or your business income or loss is from sole proprietorship. If your business income or loss is from a joint ventures or partnership then you need file Form 1065.
Is My Hobby or Non-Profit Activity Considered As a Business?
Your activity is considered as a business, if your activity is regular and continuous and operated for earning profits.
Being a Sole Proprietor Operating Multiple Business, Can I Choose Single Schedule-C?
You need to file a separate schedule c for different entities, if your businesses are operated by a sole proprietor.
Can Married Couples Operating Same Business Choose to File Schedule-C?
Since married couple’s business which is unincorporated will not have a formal agreement, for this matter both spouses can make election and file separate schedule C along with the form 1040.
Being Single Owner of Limited Liability Company (LLP) File Schedule-C?
If your entity is a domestic LLC and is being operated by a single-member will be treated as a separate entity for federal tax purposes, and can choose to file Schedule C.
By What Compulsions Schedule C-EZ Filing Is Required?
You can choose to file Schedule C-EZ, if your business is sole proprietor ship and business expenses are up to $5,000 or less, following accounting as cash, having no inventory throughout the year, have no business loss, statutory employee, given employment to others, not required to file form 4562 etc.
What Type Of Records Are Required For Filing Schedule-C?
Ensure that your records are legible of your deductions, credits and gross income with sales slips, receipts, invoices, financial statements cancelled checks etc. should be kept for 3-4 years.
You need to have a different bank account for your business transactions, IRS audits the tax returns and considers unaccounted amount as a business income and also self-employment taxes are levied.
Income Reporting:
What Type Of Income Is Reported On Schedule-C?
Your Gross receipts, any sales from business, forms 1099-K and 1099 NEC. If the information on 1099NEC is incorrect, ask for the corrected 1099NEC the payer has denied providing the corrected 1099 NEC a letter of explanation should be submitted along with the tax return.
What Other Business-Related Income Must Be On Schedule-C?
Apart from your 1099-k and 1099 NEC, if any scrap sales, bad debts recovered, interest received, fuel tax refunds, income from business or trade, recapture of excess depreciation, awards and prices, claimed credits on federal tax paid on gasoline, cancellation of debt, finance reserve income etc.
Should I Report My Bank Interest On Schedule-C?
Remember! any interest earned by the way of bank account should be reported on Schedule B instead of Schedule C.
Expenses to be claimed:
What Types Of Expenses Can Be Claimed On Schedule-C?
First and foremost, your business expenses to be claimed on the Schedule C should be ordinary and necessary for the business operations.
Discontinued business expenses of prior year can be deductible, if the expenses in the current year. The advertising expenses are deductible if they are reasonable. Truck and car expenses are deductible as per the standard mileage rate. Fees or commissions paid for contract labor. Expenses paid for the services of contract labor subject to conditions. Expenses on employee group term-life insurance, considerable health or accident plans and dependent care benefits.
Insurance: Insurance of flood, theft or fire, credit insurance for unpaid debts, overhead insurance for business overhead sole proprietorship, malpractice and liability insurance, business interruption insurance, insurance for workers compensation. Mortgage interest for business real property, fees for professional and legal services, expenses of office postage and supplies, annuity plans, profit sharing and pension contributions.
Lease or rent of machinery, vehicle and equipment rental expenses, maintenance and repairs of supplies and labor, supplies, licenses fees and FICA taxes, business travel expenses, business meals expenses, business utility bills, gross wages and home expenses for business use.
Solution For Filing Your Schedule-C:
As we have mentioned above the requisite information about the Income reporting and deductions of expenses which can be claimed on your Schedule C as per the eligibility, there are other factors too need to be considered for evaluation like: cost of goods sold, information of used vehicle for business purposes, and other eligible expenses can be considered for deduction on taxes.
A thorough evaluation is absolutely considered to avoid any audit or enquiry from the IRS or State Income Tax Department. Our Tax Experts who are absolutely fit to figure out your tax liability by reporting your exact income and claiming your reasonable and eligible deduction to reduce your taxes.
Your tax returns will be prepared with full cautious view to ensure that there should not be any penalty notices from the tax authorities. Thanks a lot for reading this article and request you to get our assistance in getting your Schedule C from us today.