Tax season is upon us! It’s the time of year us 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 the finer points of this particular tax document.
What Precisely Is A Schedule C Form?
A Schedule C form is also called a 1040 form. This is the form tax filers use when filing as a sole proprietorship or a single-member limited liability corporation. 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, can claim 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 and freelancers fall into this category. Sole proprietorships are considered unincorporated businesses.
Single-member limited liability corporations (LLC) use this tax form as well. While an LLC is formally incorporated, these corporations are owned by one person, and the profits flow directly to them.
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
- 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. It’s not as bad as it seems. Keep these tips in mind to make things easier.
- If you have more than one side gig, you will have to fill out 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.
- You can purchase tax software that includes the Schedule C form.
- Self-employment has perks in terms of tax deductions. Be on the lookout for them.
- File your taxes quarterly to avoid potential penalties from the IRS. This is different from non-Schedule C filers.