- Tips can help sole proprietors file IRS Form Schedule C.tax time image by Tom Oliveira from Fotolia.com
IRS Schedule C is used to declare profits or loss from a business. It is filed by sole proprietors in conjunction with IRS Form 1040. The IRS defines a business as, “…[an activity where the] primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.” Keep a few tips in mind to avoid difficulty in filing your Schedule C. - Many benefits come from keeping good records for your business. You can monitor the progress of your business and help ensure your business will succeed. Good records will help guarantee you have accurate financial statements. Your financial statements should include your profits and losses and a balance sheet. In addition to helping you fill out the Schedule C, financial statements also will help you with banks or creditors. Good records are also beneficial if you are ever audited by the IRS, because you can explain all income or expense.
- According to the National Association for the Self-Employed, one of the main areas mistakes are made is in properly categorizing expenses. Four out of five areas on the Schedule C deal with expenses. Part 1 on the Schedule C is used to calculate gross income. You will deduct most of your expenses in Part 2 of Schedule C. Some of the areas categorized in Part 2 include pension and profit-sharing plans, travel and entertainment, wages, expenses for the business use of your home, and car and truck expenses. Part 3 is uses by businesses that sell goods to customers. This is where you would enter any expenses associated with goods sold. Part 4 is used for information on your vehicle, which is used to verify any vehicle expenses you reported in Part 2. Finally, Part 5 is used for other expenses that did not fit into Part 2. This may include membership to professional organizations, subscriptions to business publications or business-related gifts.
- As a sole business owner, you must make estimated tax payments. According to the IRS, “Estimated tax payments is the method used to pay tax on income that is not subject to withholding.” You pay self-employment tax through estimated tax payments. You can use IRS Form 1040-ES to figure out your self-employment tax. You must pay estimated tax in four equal installments. These dates are normally on the 15th of April, June, September, and January. You can pay the taxes using the Electronic Federal Tax Payment System. If you don’t pay the estimated tax payments by the time they are due, you may face penalties.
- It is important to protect your financial records in case of disaster. This ensures that you will be able to continue your business and that you always have accurate records available to fill out the Schedule C. You can keep bank statements and other financial documents online. You also can invest in accounting software to maintain records. Back up the records kept with the software on some sort of electronic storage device or online.
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