How to Prepare a Schedule C
Make sure you qualify., Gather records of your expenses., Ask for help if you get stuck.
Step-by-Step Guide
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Step 1: Make sure you qualify.
Although the Schedule C form itself says that it's designed for a Sole Proprietorship, that's a little misleading.
We tend to think of sole proprietors as tiny businesses, like a hot dog cart or selling bric-a-brac at a flea market.
The IRS has a different definition, which includes:
Independent contractors.
A lot of “independent contractors” in the workforce are misclassified, and actually labor under conditions resembling an employer-employee relationship.
As a result, the “contractor” doesn’t think of themselves as an entrepreneur, blazing a trail in the marketplace.
They think of themselves as an employee, and it is extremely common for independent contractors to neglect to complete a Schedule C form.
If you get a 1099 instead of a W-2, you need to fill out Schedule C.Additionally, a single member LLC is classified as a sole proprietorship for tax purposes—even though the LLC designation explicitly changes its status from a sole proprietorship.
So if you are the sole owner of an LLC, even if you have employees and paying taxes on their wages, you should still file Schedule C.
Although you can elect to be treated as a corporation instead of a sole proprietorship, you need to specifically request it, and file Form
8832.
The Schedule C-EZ is much easier to complete, but almost no one qualifies.To qualify, you must have only one business and no employees, use the cash method of accounting and your business expenses must be $5,000 or less. -
Step 2: Gather records of your expenses.
Schedule C is a detailed look at the profits and/or losses of your business, and many kinds of expenses can be deducted from your gross profits.
The greater your profit, the greater your tax liability, so it behooves you to do what you can within the law to minimize your profit.
However, if you claim a deduction you can’t document, you run the risk of civil and even criminal penalties if you’re ever audited.
So don’t claim anything you can’t document.There are a number of deductible items, and you can find the entire list on the Schedule C form itself.
You should locate copies of any leases on office or storage space, (including your home, if you work from home), mortgages, notes from any loans you paid during the year, payroll records, and benefit statements.
Don’t leave out the little things.
Thousands of tax filers miss out on eligible deductions every year, paying millions of dollars they didn’t have to pay.
Don’t let this be you.
You can deduct travel, maintenance on your car, meals, utilities, even advertising.
As long as you keep good records, the savings will add up. , If you’ve never done it before, completing Schedule C can be a little bewildering, even if you do have your records in order.
While the instructions for completing the form can be helpful, the writing style isn’t very user friendly.
The instructions are available at https://www.irs.gov/pub/irs-pdf/i1040sc.pdf, but there’s a wealth of information in the IRS’ website, and a great deal of information on the web, on both tax preparation websites and financial websites.
If you can’t make any headway after consulting reference materials, and you don't want to pay a tax preparer, call the IRS up.
They have different telephone help lines based on what type of assistance the caller needs, so if you need to call them, simply go to https://www.irs.gov/help-resources/telephone-assistance and find the number you need. -
Step 3: Ask for help if you get stuck.
Detailed Guide
Although the Schedule C form itself says that it's designed for a Sole Proprietorship, that's a little misleading.
We tend to think of sole proprietors as tiny businesses, like a hot dog cart or selling bric-a-brac at a flea market.
The IRS has a different definition, which includes:
Independent contractors.
A lot of “independent contractors” in the workforce are misclassified, and actually labor under conditions resembling an employer-employee relationship.
As a result, the “contractor” doesn’t think of themselves as an entrepreneur, blazing a trail in the marketplace.
They think of themselves as an employee, and it is extremely common for independent contractors to neglect to complete a Schedule C form.
If you get a 1099 instead of a W-2, you need to fill out Schedule C.Additionally, a single member LLC is classified as a sole proprietorship for tax purposes—even though the LLC designation explicitly changes its status from a sole proprietorship.
So if you are the sole owner of an LLC, even if you have employees and paying taxes on their wages, you should still file Schedule C.
Although you can elect to be treated as a corporation instead of a sole proprietorship, you need to specifically request it, and file Form
8832.
The Schedule C-EZ is much easier to complete, but almost no one qualifies.To qualify, you must have only one business and no employees, use the cash method of accounting and your business expenses must be $5,000 or less.
Schedule C is a detailed look at the profits and/or losses of your business, and many kinds of expenses can be deducted from your gross profits.
The greater your profit, the greater your tax liability, so it behooves you to do what you can within the law to minimize your profit.
However, if you claim a deduction you can’t document, you run the risk of civil and even criminal penalties if you’re ever audited.
So don’t claim anything you can’t document.There are a number of deductible items, and you can find the entire list on the Schedule C form itself.
You should locate copies of any leases on office or storage space, (including your home, if you work from home), mortgages, notes from any loans you paid during the year, payroll records, and benefit statements.
Don’t leave out the little things.
Thousands of tax filers miss out on eligible deductions every year, paying millions of dollars they didn’t have to pay.
Don’t let this be you.
You can deduct travel, maintenance on your car, meals, utilities, even advertising.
As long as you keep good records, the savings will add up. , If you’ve never done it before, completing Schedule C can be a little bewildering, even if you do have your records in order.
While the instructions for completing the form can be helpful, the writing style isn’t very user friendly.
The instructions are available at https://www.irs.gov/pub/irs-pdf/i1040sc.pdf, but there’s a wealth of information in the IRS’ website, and a great deal of information on the web, on both tax preparation websites and financial websites.
If you can’t make any headway after consulting reference materials, and you don't want to pay a tax preparer, call the IRS up.
They have different telephone help lines based on what type of assistance the caller needs, so if you need to call them, simply go to https://www.irs.gov/help-resources/telephone-assistance and find the number you need.
About the Author
Shirley Lewis
A seasoned expert in lifestyle and practical guides, Shirley Lewis combines 4 years of experience with a passion for teaching. Shirley's guides are known for their clarity and practical value.
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