Tax season is upon us! It’s the time of year mere mortals are tasked with decoding the alphabet soup that is IRS tax forms. There is the potential that things can sound even more confusing once you are no longer filing just a standard tax form. The process looks different if you are a small/medium-sized business or self-employed. To help demystify the process, let’s look over the Schedule C form and review some of the finer points of this particular tax document.
What Precisely Is A Schedule C Form?
A Schedule C is the form tax filers use when filing as a sole proprietorship or a single-member limited liability corporation (LLC). This form is used to record their profit and losses for the previous tax year. This is also the form where the tax filer can record their additional business expenses and deductions for mileage. A Schedule C form is titled “Profit or Loss From Business.”
For sole proprietors and single-member LLCs who turned a profit, are claiming less than $5000 in business expenses, and won’t be claiming things like a car or home office, can file a Schedule C-EZ.
Who Should File A Schedule C Form?
As mentioned above, sole proprietorships and single-member limited liability corporations are the candidates for this specific tax form. The definition of a sole proprietorship is an entity that is run by one person. That person is entitled to all the profits. That person also assumes all responsibility for liability and losses. Independent contractors, freelancers, and those who participate in the gig economy fall into this category. Sole proprietorships are considered unincorporated businesses (talk to your CPA in Lombard IL or your business attorney about why you may want to consider incorporating your sole proprietorship).
While an Single-member limited liability corporations (LLC) is formally incorporated, the IRS treats them as “disregarded entities”. That is a fancy way of Single-member limited liability corporations are treated by the IRS as sole proprietorships.
What Information Does One Need To File A Schedule C Form?
You will need the following items on hand when you fill out your Schedule C form:
- Inventory receipts (if you carry inventory)
- Profit & loss statements
- Business receipts
- Bank and Credit Card Statements
- Mileage records (if applicable)
There are spaces on the Schedule C to input all of this information.
Tips That Make Filling Out Your Schedule C Easier
If you have never done this before, these forms can look quite daunting. Luckily, CPAs are well versed in completely complex tax returns.
- If you have more than one side gig, you will have to more than one Schedule C.
- Measure the square footage of your office space. You may be able to write off a portion of your rent or mortgage (check with your CPA about specifics).
- Contact a CPA who specializes in working with small business owners.
- Self-employment has perks in terms of tax deductions. Be on the lookout for them.
- Make quarterly estimated tax payments to avoid potential penalties from the IRS. Your CPA can help you determine an appropriate amount for each. Hint: paying too much is just as bad as not paying enough.