Tax season is often a stressful time of year, especially if you are a small business owner with a Limited Liability Company (LLC) or other corporate entity for tax purposes. Filing a business tax return can often be complicated; you have to keep track of lots of details of your business profits and expenses. But one of the most important elements of your small business taxes should be easy to remember — filing a Schedule C form.
The Schedule C form is one of the most common small business tax forms. Small business owners are required to file a Schedule C form along with their 1040 form as part of their tax returns. The Schedule C is used to report income or loss from a business or sole proprietorship owned and operated by the taxpayer. There is also a simpler version of the Schedule C form called the Schedule C-EZ that can help you save time if you qualify to report your business income and expenses on this “short version” of the Schedule C form instead of the usual version.
You can use Schedule C-EZ if your business meets all of the following qualifications:
- You have profit from your business
- Your business expenses are $5,000 or less
- Your business has no employees
- Your business has no inventory
- You are not using depreciation
- You are not deducting the cost of your home
The Schedule C form addresses a few key categories of tax-related information about your business, such as the name of the business, what types of products or services are sold by your business, which accounting method you use (cash accounting or accrual accounting), gross receipts (sales) and cost of goods sold.
Perhaps most importantly to business owners who want to minimize their tax bill, the Schedule C form is where you list your tax-deductible business expenses, such as business travel, rent for your office space, advertising, office supplies, business automobile expenses and deductible mileage, business travel expenses, business meals and entertaining clients, wages paid to employees and any deductions for your home office.
The Schedule C form is used to calculate your business’s total net profit or loss for the tax year, and then this amount is included on your individual tax return form 1040 as part of calculating your overall taxable income and total tax owed for the year.
The Schedule C sounds complicated, but it actually consists of just 2 pages with five sections:
- Part I: Income — this is where you record your gross receipts/sales and calculate your gross profit and income for tax purposes.
- Part II: Expenses — this section is where you record your deductible business expenses such as advertising, insurance (other than health insurance), contract labor, office expenses, pension and profit-sharing plans, travel, wages and more.
- Part III: Cost of Goods Sold — this section is for businesses that sell products that need to keep track of the value of their inventory and calculate the value of inventory at the beginning of the year and at the end of the year.
- Part IV: Information on Your Vehicle — if you use your car or truck for business, you might be required to fill out this part of the Schedule C form to track your deductible mileage.
- Part V: Other Expenses — this section is for recording other business expenses not included within Part II.
Depending on how complex your business is, you might be able to fill out your Schedule C form by yourself or with the help of tax preparation software. However, many small business owners find great peace of mind in dealing with the complexities of small business tax season if they get help from a professional tax preparer. That’s why IncFile is proud to give our customers access to professional tax preparation from a CPA to help you file your tax returns. For more information on how to get professional tax help at reasonable prices, please refer to our website on filing your business taxes.