Filing Small Business Taxes on Schedule C
Do-It-Yourself Business Tax Return, Including Self-employment Taxes
Filing Small Business Taxes on Schedule C—5 Steps to Do-It-Yourself Filing
If you are a sole proprietor or single-member LLC owners, you must file your business tax return along with your personal tax return each year. You will be using Schedule C for your small business return and you will add that schedule to your personal 1040.
The Schedule C Form
Schedule C is used to calculate the amount of net income for a small business, and this net income is added to other forms of income on the owner's personal tax return. Tax is paid on the net income of the business and is added to the owner's personal tax return.
Schedule C is a two-page form. The first section is information about your business.
Part I is information about your business income, including cost of goods sold if you have an inventory of products you sell.
Part II is a listing of your business expenses. Check out this article on business tax deductions from A to Z to make sure you don't miss any.
Part III is the detail on cost of goods sold, and Part IV asks for details on your business vehicle for car expenses. Part V asks for details on other expenses that don't fit into the categories in Part II.
How the 2017 Tax Law Affects Your Schedule C
The 2017 Tax Cuts and Jobs Act (the "Trump Tax Cuts") means some changes in the way you work on your Schedule C, beginning with the 2018 tax year. There are many limitations and restrictions on these changes, so it's a good idea to discuss them with your tax professional. Briefly, these are some of the major changes:
- You may be eligible for an additional 20% tax cut on your net business income, in addition to other business expense deductions. This article from the IRS discusses the details of this deduction.
- You may be able to deduct more of the expense of buying equipment and business vehicles in the first year you own and use these assets.
- If you have employees, you may be able to get a business tax credit for providing them with family leave benefits (through 2019).
- On the downside, entertainment expenses are no longer deductible. in addition, some meal expenses for employees may not be deductible and deductibility for others is reduced.
Steps to Filing Your Small Business Income Taxes
Here are five steps to filing your small business tax return on Schedule C and Schedule SE for self-employment taxes.
Step One: Get the Forms You Need
You will need Schedule C to calculate business income and Schedule SE to calculate self-employment tax. You can download and print these income tax forms from the IRS website. Note that you can also download and print or view the instructions for both forms.
Your Schedule C is part of your personal tax return, so you may want to use business tax software. Be sure the software you are using includes Schedule C.
Step Two: Complete the Forms
Both Schedule C and Schedule SE are "fillable" forms. That is, you can complete them online, save a copy, and print out the copy. Be sure to save the copy where you can find it if you have to make changes. You can also use my instructions for a simple version of both Schedule C and Schedule SE.
Even if you are using software, you might want to do a trial run with Schedule C using the fillable form, so you can see how to categorize your business income and expenses. This is most important because you want to capture all of the expenses on Schedule C.
If you have expenses that don't fit into the listing in Part II, collect the other expenses in categories and include them in the list in Part V.
If you have a home-based business, you will need to prepare Form 8829 to calculate the home-based business space deduction, or you may be able to use the simplified method.
Step Three: Add Business Tax Forms to Your Form 1040
Add your business income and self-employment tax information to your personal tax return, on Form 1040. If you are using tax software, it's a good idea to let the program calculate Schedule SE and add any tax to the return, because this form is a little more complicated.
Step Four: Check for Errors
Review these common tax return errors to be sure your return is completely accurate. The IRS will send it back to you if it has errors. In some cases, the IRS will catch simple math errors, but if you are getting a return, you don't want to delay it by having your tax return returned.
Step Five: File Your Return
If you are using tax software or a tax preparer, you can use E-File. If not, you will have to mail the return to the IRS. Make sure your return is received on time, according to IRS requirements for receipt of tax returns.
Don't Forget Self-Employment Tax
In addition to filing a small business tax return on Schedule C, you must also report and pay self-employment tax (Social Security and Medicare tax) on the net income of your business. Self-employment tax is calculated is also calculated on Schedule SE and paid by the business owner, along with income taxes on other income.
Because self-employment tax is calculated based on your business net income, if you did not make a profit for the year, no self-employment tax is due. But, you must still complete Schedule SE to show your calculation.
Should I Get a Tax Preparer for Schedule C?
If you have a very simple business without inventory, you might be able to prepare your own Schedule C, or you might be able to use a tax software program. If you have any unusual business expenses, or if your form is more complicated (including business mileage, cost of goods sold, or home-based business), you should probably consider using a tax preparer for your business taxes.