Schedule C: What's the deal?
If you’ve started a business or have a business that didn’t make much money during the year, you may be wondering if and how you need to report it to the IRS. As a good rule of thumb, the IRS wants to know everything you’ve earned and spend related to your business for each tax year. For some business owners, this is done using Schedule C on your Federal tax return.
What is a Schedule C?
Schedule C details all the income and expenses incurred by your business. The resulting profit or loss is included on Schedule 1 of your personal Form 1040. The profit or loss is also used on your Schedule E to calculate self-employment taxes owed.
Who Has to File Schedule C?
Sole proprietors and single-member limited liability companies (LLCs) must complete Schedule C as part of their individual 1040 tax return. A sole proprietorship is a business that you own by yourself which isn’t registered as a specific type of business. A single-member LLC is a limited liability company you choose whether to be treated as a corporation (file its own corporate tax return) or instead report your profit or loss on Schedule C, similar to how a sole proprietor does.
Do I Need a Separate Schedule C for Each Business I Own?
Yes – you’ll need to file a Schedule C separately for each business you own.
What Information Do I Need to for my Schedule C?
1) A statement of profit and loss – if you don’t have one, gather support for all income and expenses such as invoices and receipts for business purchases.
2) Information on any assets purchased for the business during the year – did you buy a computer, a work truck, software, real estate, etc.?
3) Home office and automobile expenses
a. If your business operates from your home, you may be able to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, homeowners insurance, and some utilities.
b. If you use your personal automobile for business travel, you may be able to claim expenses by using a standard mileage rate deduction or by the actual expenses incurred (gas, parking, new tires, registration, etc.)
Do I Need to File a Schedule C if my Business Didn’t Make Money?
No – you are not required to file if your business did not earn any income. However, you may want to file if your business had any expenses during the tax year.
Do I Need to Pay Quarterly Taxes for my Business?
Generally, sole proprietors must make estimated tax payments in they expect to owe tax of $1,000 or more when filing their tax return. Knowing how much to pay is more complicated, but to put it simply, the IRS allow you to use a “safe harbor” method. Under the method, you could pay quarterly through the tax year in a few ways -
- 90% of the taxes you estimate you will owe for the current tax year
- 100% of last year’s taxes owed (or 110% if your Adjusted Gross Income is more than $150k)
- Annualization income installment method – best for freelancers or those whose income rises dramatically late in the year. This is best described as a “pay-as-you-go” approach.
What Are Self-Employment Taxes?
When you work for someone else, that employer withholds money from your paycheck to cover taxes for Social Security and Medicare. When you are self-employed, you must pay these taxes yourself. If your business earns $400 or more in net profit, a Schedule SE will be completed for that year. This schedule is to calculate the self-employment tax you must pay. The IRS allows you to deduct some of those payments.
Overall Top Tips for Schedule C Filers:
Keep good records throughout the year
Make time tax easy or yourself! Be ready with your information so you aren’t scrambling to find proof of income and expenses.
Make quarterly estimated tax payments
Don’t wait until the end of the year to pay your taxes. You could be hit with penalties.
Don’t wait until the last minute
You will only cause yourself stress. Leave yourself time to gather all relevant information and talk to an expert early.
While these answers to some of the top asked tax questions may be helpful getting you started, you may still have questions in fulfilling your tax obligations. Contact Walsch Tax and Financial Services, LLC today to get help with all your tax needs!