Small business owners who are filing business taxes as a sole proprietorship or single-member LLC must file using Schedule C–Profit or Loss from Business. Here are the tax documents you need to take to your tax preparer to file Schedule C. If you want to do your own business income taxes, you will need this information before you start using tax preparation software or going with the DIY approach.
Information on Your Business Net Income
Give your CPA a P&L (profit and loss, or income) statement, showing your revenue or gross income for the year.
For this statement, you will need information on all sources of income for your business, including any 1099-MISC income from work as an independent contractor. You can deduct returns and credits that reduce your business income. You may also be able to write off bad debts if your business uses the accrual accounting method.
Information to Calculate Cost of Goods Sold
If your business sells products and keeps inventories of those products, you may want to calculate the cost of goods sold. For this calculation, you will need information for COGS on the following:
- Beginning inventory: This is the amount you have in inventory at the beginning of the year.
- Ending inventory: This is the inventory you have at the end of the year and will help you arrive at a number of units sold.
- Cost of labor: This will be important if you have employees working solely on goods sold and the cost of labor is a direct cost. Add up all the wages and salaries you pay these employees.
- Materials and supplies: This will typically be a large expense if you have inventory as it includes the wholesale cost as well as all supplies used in preparing and distributing the products.
Information on Your Business Expenses
Your Profit and Loss statement will mostly focus on the difference between your revenue and all of your expenses for the year. Expenses are an important factor for your taxable income, so take your time and include everything. The more actual and allowable business expenses you include, the lower your business income and business income tax bill will be. Include records for common monthly expenses, including:
- Phone, utilities, computer expenses, and other office expenses
- Business insurance, including insurance on your business property
- Supplies, including office supplies
- Labor fees you paid. You should have sent these people a 1099-MISC form if you paid them more than $600 during the year.
- Interest on loans, leases, mortgages, and other business debts
- Meal expenses (entertainment expenses are no longer deductible). You may only be able to deduct 50% of these expenses.
- Petty cash or those small monthly spending amounts can add up. These expenses include tolls and parking, in-office meals, and miscellaneous travel and office expenses.
- Miscellaneous expenses. Some expenses are difficult to categorize on a tax return. There is a place for miscellaneous expenses on your business tax return, so don't hesitate to include all of these hard-to-categorize items.
Make sure you have records for all of your business expenses.
You don't need to submit the records of your expenses with your tax return, but you will need to show them to your tax preparer and be prepared to show them to the IRS in case your business tax return is audited.
Information on Business Travel and Driving Expenses
If you drive for business purposes, you will need records to show the business purpose for trips, and you may need actual driving expenses if this is the method used to calculate driving expenses. (The other calculation method is to use a standard mileage deduction.) You and your tax preparer may want to compare the standard deduction and actual expenses to see which gives you more tax deduction.
If you traveled for business on out-of-town trips, you will need information about the business purpose of these trips, and details on expenses, including air, hotels, and meals.
Information on Business Use of Your Home, if You Work From Home
You will need information for Form 8829 to substantiate the business use of your home, including:
- Calculation of the percentage of your home square footage that is set aside for "regular and exclusive" use by your business.
- Amount of your home mortgage interest, real estate taxes, and homeowner's insurance.
- Home expenses like utilities, rent, repairs, and maintenance.
- Information about the value of your home for depreciation purposes.
Information on Your Business Assets
You will need to provide information on your business asset records, including business vehicles, for depreciation purposes. Take all of this information to your CPA, Enrolled Agent, or another type of tax preparer, or use business tax software to prepare your return.
Plan ahead and start early. If you are preparing tax returns yourself, most systems will allow you to enter and save information as you have it available, which can be helpful for considering different advantages.