So . . . You’ve Decided You Need to File a Schedule C. Now What?

Still not sure whether or not the Schedule C is for you? Take a look at my previous blog post to get some clarity. If you have decided you need to file a Schedule C for your business, continue reading to learn the basics of what information you’ll need and how to record it.

The first half of the Schedule C describes the business you are in, and asks you a variety of questions. One important question is if you are cash basis or accrual basis in your bookkeeping methods. In my experience, most people who file a Schedule C are cash basis. This means that you record income when you physically receive the money, and you record expenses when you physically pay for something. Accrual basis is the other method and this means you record income when it is earned, and you record expenses when they are incurred. If you are an accrual based business, you will have “accounts receivable” which means you have earned the money, but the person or business has not paid you yet. You would record this money as income on your return. The same thing goes for “accounts payable”.

Another important question asked at the top of the Schedule C is if you made payments that would require you to file a 1099. For example, if you subcontracted a job to a person and paid them, you could give them a 1099 showing the income they received from you. The IRS would also get a copy and that person would be liable for reporting that income on his or her tax return. If you aren’t sure whether or not you need to file 1099’s, leave your questions below, or you can check online!

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http://www.badkitty.com/news/how-to-get-people-to-like-you-on-facebook-in-five-simple-steps/

Now, once you are done with the basics at the top of the form, you can begin to fill in your income and expenses. If you are in business, you should know by now that you need to keep detailed records of all income and expenses you receive through the year. There are many ways to do this. You can keep written records; however, I wouldn’t recommend this because they are difficult to keep track of and it is much easier to make and miss mistakes in your bookkeeping. There are a variety of other programs available nowadays that there is really no need to record your books by hand. A very popular one is Quickbooks which most people know about, but it seems that not many people use it to its full potential. Quickbooks is beneficial no matter what size business you have. I would recommend using the desktop version, not the online version, because the online version can be slightly more confusing and difficult to use, but it is really your preference.

You should report all income you received through your business during the year, even if you did not receive 1099’s from anyone. This will go on Line 1. You also need to keep track of any returns or discounts you gave because those can be deducted from your income. Then comes all of your expenses. You can generally deduct any expenses you incurred that were associated with the functioning of your business. This includes: advertising, car expenses (the car/truck must be used for business only or you can only deduct a percentage of expenses based on your personal to business use ratio), supplies, legal fees, etc. You can even deduct $0.56 per mile that you drive in your business vehicle. They all must be directly related to your business or you cannot deduct them. If you use a portion of your home or you use your car for work and personal use, you will need to file alternate forms in order to claim a percentage of expenses for

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those items (we’ll go over that later). However there are certain expenses that cannot be deducted and must be capitalized. If you buy large assets for your business such as a building or a large piece of equipment, you could have to capitalize these. This means you do not get to take a huge expense in the current year, but instead the cost of the item is expensed over a number of years so you get to expense a small portion of the cost of that item each year. You keep track of these items on a depreciation schedule.

The IRS has new rules out that may affect how you determine which repair and maintenance costs to expense or capitalize. This regulation could affect what deductions you get to take on your Schedule C. Stayed tuned in to The Tax Bleep and we will discuss that too since it will be affecting many taxpayers!

Click the following links to view the following forms we just discussed: 2014 Schedule C and its instructions! Please leave any question or comments you may have!

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