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Any
Income you earn from your business is reported on schedule C. You must
file a schedule C if you receive income as a subcontractor or earn income
in a trade or business activity.
Income
is Reported on Line One.
You can organize your expenses by totaling the amount you spent last year
in the following categories.
| Most
Common Items |
|
| Advertising |
Line
8 |
| Commissions
and Fees you paid |
Line
11 |
| Business
Liability Insurance |
Line
15 |
| Mortgage
and Bank Interest |
Line
16 For money you borrowed for your business |
| Legal
and Professional Services |
Line
17 |
| Office
Expenses |
Line
18 Do not include office equipment |
| Equipment
Rented |
Line
20 |
| Vehicles
Rented |
Line
20 |
| Office
or Storage Rent |
Line
20 |
| Repairs
and Maintenance |
Line
21 Do not include your car repairs here |
| Supplies |
Line
22 |
| Taxes
and Licenses |
Line
23 |
| Travel |
Line
24a |
| Meals
and Entertainment |
Line
24b |
| Utilities |
Line
25 |
| Wages
you Paid |
Line
25 |
|
|
| Cost
of Goods Sold |
|
| Labor
Paid |
Line
37 |
| Materials
Purchased |
Line
38 |
|
|
| Common
Red Flags for the IRS |
|
| Bad
Debts from Sales or Service |
Line
9 [Red Flag Report] |
| Car
and Truck Expenses |
Line
10 [Red Flag Report] |
| Home
Office Deduction |
Line
30 [Red Flag Report] |
|
|
| Cautionary
Items |
|
| Depletion |
Line
12 |
| Depreciation |
Line
13 |
| Employee
Benefit Programs |
Line
14 |
| Pension
and Profit Sharing Plans |
Line
19 |
| Inventory |
Line
35 and Line 41 |
Any
schedule C reporting a net loss has a high likelihood of being audited.
Red
Flag
Reports
This is an area where mistakes are often made because of a misunderstanding
of what constitutes a loss. Let's take a look at a common occurrence for
a small business.
Ted, a framing
contractor, and cash basis taxpayer is hired by Illnotpayu Developers
to frame a house. Ted purchases the lumber, hires helpers to work with
him on the job and completes his work in a good and timely manner. Ted
visits Illnotpayu's office to collect his check and finds the place deserted.
Does Ted use Line nine to report his loss?
Probably not.
Here is
the proper procedure for Ted.
The material he purchased is deducted on line 38 just like his other material
purchase. The labor he hired is deducted on line 37 just like his other
job related labor. His overhead expenses such as office supplies and other
items are deducted in the same way in the appropriate places.
What about
Ted's personal lost time and income?
Since Ted is a cash basis tax payer he has nothing to deduct since the
money he wasn't paid is not reported as income anyway.
For this reason a deduction on this line often triggers an examination.
Accrual basis taxpayers may use this line to deduct income that has already
been reported.
Car and
Truck Expenses
If you are using your vehicle in business you are entitled to deduct the
business portion of the cost of operating the vehicle. You may do that
by deducting the mileage formula or by deducting the actual cost of operating
the vehicle. If you have more that one vehicle you must deduct the actual
cost. This is an area of common scrutiny by the IRS and you should be
prepared to provide proof of your business use. A day planner listing
your business miles driven in a calendar format backed up by repair receipts
documenting your odometer reading are usually accepted by the IRS as adequate.
Home Office
Deduction
The home office deduction has been a hotly contested area for years, but
the rules have been changed to favor the deduction this year. However,
carefully follow the help guidelines in TurboTax or refer to your tax
guide before using this deduction.
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