Taxes are imposed on either individuals’ or enterprises’ assets. Sharing transparent, true, and correct information about the money you earn from your business is very important to maintain stability. Various tax forms should be provided by US citizens to operate their companies legally and successfully. One of the forms that are meant to help businesses decrease taxes is Form 1040.
All the United States self-employed residents should report information about their income, as well as the losses from their business every tax year. This must be done if you own a single-member LLC and if you are a sole proprietor. The IRS Schedule C (also referred to as Profit or Loss from Business) is created to provide this information and is usually submitted along with the income tax return (Form 1040). These forms are not the same, as a 1040 template is used by all taxpayers, no matter whether they are working in an organization or are registered as self-employed.
The self-employment status may not imply running a serious business. A sole proprietorship is individual entrepreneurship that has nothing to do with legal entities, partnerships, and corporations. Writers, consultants, independent contractors, Uber drivers, or local small businesses such as coffee shops are all examples of what sole proprietorship may be.
There are apparent advantages of this type of self-employment:
Several downsides exist, too:
Self-employed individuals need to file Schedule C Forms for each of their businesses together with a 1040 tax return to notify the IRS about the net profit they made annually, as well as the money they lost. Net profit, also called net earnings, is computed when you subtract all the money your business lost from your total revenue. Before 2019, it was possible to file a less complicated form called Schedule C-EZ, which only required submitting total business receipts and expenses. It was available for those self-employed taxpayers who provided a net profit report from only one sole proprietorship with no workers employed and no business inventory held throughout the year.
The C-EZ form cannot be used after the beginning of the 2019 tax year.
You need to report the profit or loss in full, no matter how small the income is. The minimum threshold for paying an income tax equals 400 US dollars.
Your self-employment income and business income are calculated as one unless you are filing Schedule C as a legal employee.
Once there appears a necessity to file Schedule C Forms (one for each business you run), you need to prepare for completing them in advance by gathering the required documentation.
Submit Basic Information
Begin with completing your full name and providing a Social Security Number. Enter the type of business you own or describe the service you provide as a sole proprietor and an activation code from instructions.
If your business is registered as single-member LLC, input the business name (leave the line blank in case you do not have one). Submit the tax ID number (EIN) if you have it. Business address, including city, state, and zip code, should be inserted herein as well.
Specify the accounting method. Indicate whether you have materially participated in the operation of this business within the current year or not. If you gained ownership of this business during the current year, check the corresponding box.
Your intention to create a Form 1099— in case you need it— has to be stated at the end of the introductory part. The taxpayer should file this document if a sum of money that equals or exceeds 600 US dollars has been delivered to the subcontractors within a period of one calendar year.
Provide Detailed Information About Your Income
In this part of the paper, fill in your gross receipts for the year first. If there are any returns or allowances that diminish your income, indicate those and calculate your net receipts in line 3. Then you are asked to estimate the cost of sold goods, subtract line 4 from line 3 and write down the gross profit. The information about other income you have earned must be counted and included in line 6. Finally, it would help if you inputted the gross income.
Capture the Business Expenses
You are supposed to categorize all the expenses you have had within this year. Describe this information in detail on lines 8 to 26. 27a is referred to the other expenses if there are any. 27b should be completed if some expenses are reserved for future use. On line 28, you will enter the total number of all expenses you happened to have this year. Tentative and net profit (or loss) has to be estimated along with the expenses for business use of your home if you have them. Additional forms might have to be attached according to the type of expenses you are describing.
Calculate the Cost of Products Sold
If applicable, share the information about your income earned by trading products (through direct delivery to the customers or using subcontractors) in this part.
Select the method of valuing closing inventory and any changes in using the method on lines 33 and 34. Line 35 should be completed with the information about the inventory at the beginning of the tax year. If it is different from last year’s closing inventory, provide explanations. Lines 36 to 39 contain data about the other costs.
Add lines 35 to 39 and enter the result on line 40. The information about the cost of all goods will be the number you will get after subtracting inventory at the end of the year from line 40.
Fill Out the Information on Your Vehicle
This part should be completed only if you are claiming car or truck expenses in line 9. Report the date when you placed your vehicle in service for business purposes (month, date, year) and the total mileage of driving for business and commuting. Keep in mind that you will be asked to provide proof of the numbers you are entering.
If you or your spouse possesses another motor vehicle, select the corresponding option.
List Other Expenses Additionally
All expenses that did not fit into the categories in Part II have to be described herein. Make sure to fill in the information only about business but not personal expenses, even if they are deductible. If you are unsure whether the expense is deductible, ask for professional help before submitting the report.
Never postpone filling out the form until the very last moment. Section C is not as intimidating as it might seem due to its length, although completing one requires utter precision. You are also recommended to keep good records throughout the year, so you do not need to look for old receipts and make all the calculations at once right before you have to fill in relevant information and file the paper.
If you are completing the document with the help of a tax professional, they may take responsibility for providing you with the most recent Schedule C. Otherwise, you may opt for using the application from the official IRS website or any other source page you find reliable for free. To ensure the best result, use our form-building software and create your own personalized form and file a Schedule C.
Use Schedule C for each self-employment job you do. In the gig economy, a lot of individuals have several kinds of business (sole proprietorship), which makes them accountable for reporting on each different type of work. If a married couple possesses separate kinds of small business, it is impossible to file one Schedule C but also necessary to create different forms for each micro-enterprise.