Small Business Taxes For Dummies, 3rd Edition

Chapter 8

Schedule C: Profit or Loss From Business

IN THIS CHAPTER

Making sense of Schedule C

Filling out Schedule C — income and expenses

Running your own business really can be the American dream. In fact, the only thing better than working for yourself is knowing how to keep more of what you earn. It’s like giving yourself an immediate pay raise at tax time.

If you’re self-employed, for federal income tax purposes you report your income and business expenses on Schedule C of Form 1040. You determine your profit, on which you pay tax, by subtracting your expenses from your income. (Farmers use Schedule F instead, but many of the same principles apply; see Chapter 7 for an introduction to this form.)

In this chapter, I discuss Schedule C, which most small business owners use when filing their taxes. I explain the most common lines of these forms and how to legally reduce your taxes.

WHAT HAPPENED TO SCHEDULE C-EZ?

Schedule C-EZ, “Net Profit from Business (Sole Proprietorship),” was a form that was relatively EZ to complete. Not many folks were eligible to use it given the myriad requirements. Your deductible expenses couldn’t exceed $5,000, you couldn’t have an inventory of items for sale, have a net loss from your business, claim expenses for the business use of your home (see ...