Government Requirements
Annual Tax Return: IRS 1040 Schedule C
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Sole proprietors report their business income by attaching schedules to their personal federal 1040 tax return. After combining Schedule C income with your other adjusted gross income, pay any tax that wasn't withheld from other jobs or paid quarterly with 1040ES with this form.
 
Forms to use  Schedule C-EZ Annual Business Return for Small Sole Proprietors
Schedule C Annual Business Return for Sole Proprietors
 
Do you qualify?  There is an easy Schedule C-EZ for businesses which:
  • Use cash accounting
  • Have business expenses of $5,000 or less
  • Made a profit (not a loss)
  • No home office expenses to declare
  • No inventory
  • Only one business
  • No employees
  • No equipment to depreciate
 
Inventory?  If your business has inventory, it should be using the accrual method of accounting (see Accounting Systems). Report your cost of goods sold (the cost of any inventory that you sold) in Part III on the back side of Schedule C.
 
Cars for employees  Employers who provide vehicles to their employees do not have to keep reports of vehicle use IF they have a written policy that prohibits personal use. Commuting is allowed under limited circumstances. The written policies must meet specific IRS criteria. For complete information, contact the IRS.
 
Due date  April 15
 
How to complete the Sch. C 
Lines What to enter
A to H Basic questions about your business. On question D, if you do not have employees or a profit sharing plan, you do NOT need an employer ID number.
Part I Total income less returns less the cost of any items sold.
  • For line 4, cost of goods sold, complete Part III of this form and enter the rules on line 4.
Part II Expenses (except Home Office Expenses).
  • Line 10 Car and truck expenses - see instructions above
  • Line 13 Depreciation and section 179 expenses must be itemized using IRS form 4562
  • 50% of "reasonable" meals and entertainment are tax deductible.
29-32  Net profit before and after home business expenses. Home business expenses can only be claimed by Schedule C filers, using IRS form 8829. If your business had a net loss and it was a result of home business expenses, you must carry-forward these home expenses to future years (i.e. you can't lower taxes for non-business income using home expense deductions). Also, if you had a loss but you did not materially participate in the business during the year, you may not be able to take the full loss this year. Contact the IRS or your tax advisor for complete information.
Part III Cost of Goods Sold. Enter your inventory purchases, cost of your labor, and inventory at the end of the year. You cannot deduct unsold inventory as a business expense this year.
Part IV Vehicle information. Do not complete this section if you also purchased other business equipment with depreciation or amortization. Complete IRS 4562 instead.
 
To submit  Along with IRS 1040 and Schedule C or C-EZ, remember to include:

Mail these forms with any taxes due to the IRS.

 
Questions?  Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at http://apps.irs.gov/app/picklist/list/formsPublications.html.
 
 
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