Are you the sole proprietor of your small business? When it comes time to file your taxes, where do you put those expenses to claim the plethora of deductions available to small businesses? The answer, you see, is the Schedule C.
Schedule C is used to report income or losses for a business, operated as a sole proprietorship. To qualify as a business to use Schedule C, the individual must be regularly and continually involved in the operations of that business with a main focus on income or profits. It cannot be something mostly passive such as selling cookies for the annual church bake sale. Corporations and partnerships have different forms to report income or losses. For now, we’re focusing on the Schedule C that gets attached to an individual’s Form 1040.
The Schedule C – Simplified
The form itself can be outlined as:
- Biographic info, such as name, address, accounting method, etc.
- Income – gross sales, returns and allowances.
- Expenses – such as actual expenses, depreciation, commissions, contract labor, premiums on business insurance, contributions, and business use of home.
- Cost of Goods Sold (COGS), if applicable.
- Vehicle Information, to claim deductible expenses for business use of a vehicle.
- Other Expenses, not already listed above such as amortization, bad debt expenses, and business start-up costs.
Once this is all added up, a small business owner can determine if they had a profit or a net operating loss. Profits are always good, but even a net operating loss can be useful for deductible expenses or carrying the losses over to the next year.
Taking advantage of small business-related expense deductions on Schedule C like the business use of home, vehicle expense, and others require a bit of planning and know-how to use properly. Sometimes up-and-coming businesses and their owners may not have the time to plot these things out. Imagine having a knowledgeable support team take care of those needs, while you can focus on what counts most, growing your business! That’s us here at MiklosCPA. We are a California-based accounting firm that supports small and mid-sized business clients with their accounting and tax needs. Contact us to learn more about our services, and follow us on our social media pages for future good-to-know articles like this one!