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.
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
Only one business
No equipment to depreciate
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.
How to complete the Sch. C
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.
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.
Expenses (except Home Office Expenses).
Line 10 Car and truck expenses - see instructions above
50% of "reasonable" meals and entertainment are tax deductible.
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.
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.
Vehicle information. Do not complete this section if you also purchased
other business equipment with depreciation or amortization. Complete
IRS 4562 instead.
Along with IRS 1040 and Schedule C or C-EZ, remember to include:
All businesses owe annual property tax on their property. Business property includes your purchased equipment, buildings and supplies, but not inventory.
All businesses with business property exceeding $100,000 are required to file this statement, even if it is not sent to them. The County Assessor has the right to assess all businesses - so if you have business property less than $100,000 and receive a form, you must pay.
The tax rate is the same as other property tax: 1% of the assessed value (plus any extra tax approved after Proposition 13).
The County Assessor will send you a property declaration form in February or March. You must report any business property your business had as of January 1st.
Record business assets you owned as of January 1
Submit the declaration form by March 31 or April 15, depending on your county.
A tax bill will be sent to you in July or July
The tax bill is usually due August 31
How to complete the form
We have included a sample Business Property Declaration form. Your county's form
may vary slightly, but it will ask for the same information. The form usually has 5 parts:
General business information - self explanatory
Declaration of equipment that you own
List the cost of your office furniture, computers, machinery, tools, etc. according
to the date that each was purchased.
Use your annual tax returns for the cost and year purchased.
These items must be put into one of six categories.
Machinery and equipment
Tools, molds, dies
Computers less than $25,000
Computers over $25,000
Declaration of property that you own.
Estimate the value of your:
Construction in process
Equipment out on lease or rented
Add the total equipment calculated on the back of the form and enter it next to Equipment.
Declaration of leased property. If you have leased equipment or other items, you must
show who you leased it from, the year leased, the year it was manufacturered, the annual rent, and the cost to purchase it new.
Preparing 1099s is not user-friendly. The IRS does not have a direct way to input the information online. Instead, it has authorized companies to be 1099 providers. Do a search on the Internet for current providers and prices.
Annual reporting requirement
January 31 to the recipient
February 28 to the IRS
To do it yourself
Doing it yourself is possible, but not user-friendly. You have to use official IRS forms and must prepare them using a computer or typewriter (remember those?). Here is how to do it: Prepare 1 form for each payee.
What to do
Payer is your company
Recipient is the person you paid.
Payer's federal identification number is your social security number.
Recipients' identification number is their social security (if you paid an individual
or sole proprietorship), or their SS-4 number if you paid a partnership.
Remember, if you paid a corporation, you do not have complete a 1099-Misc.
Leave "Account Number" blank unless you use vendor account numbers.
Fill in the relevant boxes. Here are the most commonly used.
Rent to landlords (if you paid more than $600).
Compensation to independent contractors for services (if you paid them more than $600).
Check the box if you purchased over $5,000 of products for resale from this (non-corporate) vendor.
How to complete form 1096
1096 is the transmittal form. It must also be prepared on a computer or typewriter. Prepare one form to transmit all the 1099-Misc.
What to do
Your social security number
Enter the number of 1099s you are enclosing
0, unless you withheld income tax (line 4 on each 1099-Misc)
Add up boxes, 1,2,3,5,6,7,8, and 10 for all the 1099-Misc's Usually all but
1 and 7 are 0.
Check box 1099-MISC - 95
How to submit
Mail Copy A of 1099-M (the red page) to the IRS with transmittal Form 1096
Mail or deliver Copy B and Copy 2 to the receipient (the person or company you paid)
Keep copy C for your records
The IRS will automatically send your 1099-M information to the state tax authority.
A few more rules
$50 fine for ignoring these rules:
Type forms - regular type style
Use original forms - no copies
Submit entire 8 x 11 page - don't cut it up
Don't use dollar signs, commas or other symbols, except you should use decimal points to show dollars and cents.