Starting a small Business can bring you many benefits, like greater flexibility and control over your work. Along with those, however, are the small business tax implications: You will need to file Form 1040 Schedule C, Profit or Loss from Business, if you are an independent contractor.
The IRS Schedule C Tax Form is used by sole proprietors to report their income or losses from operating their business. The IRS states that a business will qualify if the primary purpose is to earn income or make a profit and if the business owner is continuously and regularly involved in the activity.
This guide will provide everything you need to know about the Schedule C Tax Form and simple instructions for getting it done.
Who Needs to File a Schedule C Tax Form?
Schedule C is used by sole proprietors, also known as individual entrepreneurs. You qualify if you own an unincorporated business that you run by yourself. Taxpayers who own multiple qualifying small businesses will need to file the Schedule C for each. These types of businesses file Schedule C:
Some LLCs
Limited Liability Companies (LLCs) owned and operated by a single member qualify to submit Schedule C. LLC partnerships with two or more members do not.
Independent Contractors
Freelancers or Gig Workers
How to Complete the Schedule C Tax Form (10 Steps)
1. Gather Your Records
2. Report or File Forms 1099
3. List Cost of Goods Sold
Schedule C Part III is for reporting the cost of goods sold, which includes business materials and supplies, labor costs, purchases, and other costs. This section should be filled out before any other section on Schedule C.
4. Report Business Income
5. List Business Expenses
6. Calculate Vehicle Expenses
7. Calculate Meal Expenses
8. Calculate Your Home Office Deduction
Any home office that is solely and regularly used for your business may qualify you for the home office deduction.
9. Calculate Net Profit
Calculate your net profit or loss after your income and expenses are completed, and report that on the first page of Form 1040 under line 8a. This amount is reported on Schedule 1 and Schedule SE as well.
10. File Your Tax Form
This info on Schedule C should enable you to fill it out properly and complete your taxes in no time. It’s important to keep in mind that expenses may vary depending on the type of work you do. A business tax attorney can help with questions about expenses or other intricacies of Schedule C.
Common Mistakes When Filing Schedule C
- Note that because you are a sole proprietor, you don’t have to report how you paid yourself from your business earnings since they are considered to be one and the same. Your business is a pass-through entity, meaning all income is reported solely on your personal tax return.
- You will need to file your tax return, including Schedule C, by May 17, 2021, for tax year 2020. The deadline is usually April 15 each year.
- Remember that all your business income needs to be reported on your tax return, even if a client did not send you a Form 1099.
- As a sole proprietor, you will have to pay estimated quarterly taxes in addition to filing your annual tax return.
Self-employment tax preparation can quickly become complicated with all the extra requirements. Working with a tax professional will ensure that you’re taking advantage of all deductions and credits while meeting your obligations.
Get Help Preparing Your Schedule C Tax Form
You may still have questions about your self-employment income. It is always a good idea to discuss your situation with a tax professional, especially when you are preparing a Schedule C Tax Form.
Reach out to Silver Tax Group to speak to a tax expert about filing your sole proprietor tax return. Our experienced tax lawyers and professionals can provide a range of tax advisory services to help you file documents correctly.
The post Easy Instructions for Filing a Schedule C Tax Form appeared first on Silver Tax Group.
