If you are self-employed, it is more than likely that you are going to have to fill out an IRS Schedule C to report how much money you have profited or loss in your business.
This form is known as “Profit or Loss From Business (Sole Proprietorship) and should be completed and included on your income tax return if you had any income come in from self-employment. Usually, people who have to file Schedule C will also have to file Schedule SE – Self-Employment Tax.
Sole Proprietorship Explained
Schedule C is the schedule that is used to report the profits or losses from a sole proprietorship. This is any business that you operate, and control, that is not a legal business entity such, as a partnership or corporation.
However, with that being said, if you do operate a business as a single member LLC you are going to have to fill out Schedule C form too. The business does not have to be a business that has employers or an office.
All you are saying is that you are the boss of your work, no one is writing you paychecks, and taxes are not being withheld from your pay. Even if you just cut grass for $10 a yard, you would be filing Schedule C because you are running a sole proprietorship.
How Schedule C Works
Schedule C is divided into five parts. In the first part, you are going to list all of the income you made and calculate the gross profit. In the second part, you will deduct all of your business expenses and calculate your net profit or loss. This is the number that will be used on your income tax return.
The rest of the sections will only need to be completed if you have purchased inventory, need to deduct car expenses, or have other expenses that were not covered in the second part.
Using Schedule C-EZ
Many sole proprietors can use the simpler version of Schedule C, which is known as Schedule C-EZ. This form is shorter than the original form and just asks for your business receipts and expenses. However, if you plan to claim a vehicle you are going to have a separate section to complete.
Additionally, you are only able to use Schedule C-EZ if you only have one sole proprietorship, have business expenses under $5,000, have no employees, no home office, do not have inventory, and are reporting net income.
Reporting Self- Employment Taxes
When you work for someone else, your employer is going to be responsible for calculating payroll withholding to cover Social Security and Medicare taxes. However, self-employed people are responsible for paying these taxes themselves.
If you earn more than $400, the IRS requires you to fill out Schedule SE. This schedule allows you to see how much you have to pay. However, when filling out the form you will be able to deduct some of these payments.
Use TurboTax and forget the forms
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Much more information you can get from us about IRS Schedule C.