Schedule C & Schedule C-EZ Filing Tips

Schedule C & Schedule C-EZ Filing Guide for Self-Employed Business Owners
The amount of planning that goes into tax preparation can be overwhelming for most individuals, especially for those who are sole proprietors and are required to file a Schedule C or Schedule C-EZ.  AberCPA of Rockland County, New York is full service expert accounting firm which assists hundreds of New York City Metropolitan Area clients with tax saving methods and tax filing preparation.  A Schedule C, as indicated by its official title of “Profit or Loss from Business” is a federal tax form that is primary used to report the income and losses of one owner businesses, sole proprietors and unincorporated businesses.  In addition, a Schedule C or Schedule C-EZ  can be used to file expenses related to miscellaneous income and non-employee compensation.  Given the complexity and intricacy of the form, it is best to consult with a qualified Certified Public Accountant (CPA) for filing your taxes with a Schedule C.

Here is a quick link from the IRS website about the subject of Schedule C’s and Schedule C-EZ’s.  We will go into greater details about what the differences are and the best tips and solutions for you to save money and use the right forms.   

schedule-c-IRS-Form- screenshot

Why File A Schedule C?   

The simple answer to the inquiry as to why you should file a Schedule C is that you will avoid an audit.  There are other reasons, however, so lets start with some simple background on Schedule C and Schedule C-EZ.  An IRS tax form is legally required by the federal government if you are taxpayer or tax-exempt organization and you need to report financial information on your form.  Schedules allow you to abide by the Internal Revenue Code (IRC) and report your income and calculated taxes that need to be remitted to the federal government of the United States.  Now it gets more difficult to understand as there are more than 800 forms and schedules that are available when you file.  A form that you may be familiar with is Form 1040 which is used by individuals. There are three variations of this form:  

  1. 1040 – “Long Form”   

  2. 1040A – “Short Form”

  3. 1040 EZ    

Consisting of two full pages before schedules and attachments, the first page gives the IRS a rundown of the taxpayer, including taxpayer basic information, dependent information, income data for the year in question and adjustments to that income.  The second page naturally follows with details on credits and deductions and taxes due, just to name a few items.

A Form 1040 allows for 11 attachments more commonly called “schedules” which may or may not be required depending on your filing status.  The Schedule C is required for small business owners who are self-employed taxpayers essentially just getting their businesses off the ground.  These taxpayers may be doing well or not doing well- it doesn’t matter- they still should file with the assistance of a CPA like Scott M. Aber, CPA OF AberCPA.  There are two versions of the Schedule C: the ordinary Schedule C or the shortened Schedule C-EZ.  The schedule C-EZ is also known as “Net Profit for Business” as opposed to Schedule C which is titled “Profit or Loss From Business.” You can file the more simple Schedule C-EZ if you are a self-employed taxpayer without net losses and no employees; your business expenses must also be under $5,000.    

Schedule-C-filing-Profit-and-Loss

Do You File A Schedule C or A Schedule C-EZ?    

If you own and operate a sole proprietorship then you must report your self- employment income (no matter how via a schedule.)  In a nutshell, this means more paperwork and additional tax-filing work. If you meet certain requirements, however, you have the option of filing an abridged Schedule C-EZ.  Both schedules attach to your 1040 Form.  Please note that you are required to use the long form of the 1040 in either case. On both schedules, you will itemize operational expenses and income.  So business earnings and losses can be rolled-up into your individual Form 1040.   

When attempting to choose which version of the Schedule C you must use, take heed of the form titles because they are sometimes self-explanatory.  “Profit or Loss From business” versus “Net Profit from Business” indicates that the latter form (Schedule C-EZ) is only appropriate when your business has no losses.  There are criteria to consider though and, in order to file a Schedule C-EZ,  the following bullet points must apply to you:  

  • You only operate one business– if you own more than one business, you must file a Schedule C for each business.   

  • You have have business expenses less than $5,000.   

  • You use the cash method of accounting– accrual accounting is not acceptable.   

  • You have no employees.   

  • You don’t claim expenses related to your home for business use.   

  • You don’t depreciate any property of your business.  

  • You don’t have inventory.   

  • You don’t carry over passive activity losses from previous tax years.     

Even if you meet the requirements for being able to use the Schedule C, you still may want to consider using the Schedule C-EZ.  For example, if you have a home office      ( remember, Schedule C-EZ filers cannot deduct expenses related to home offices), you should think about using a Schedule C because you are allowed to itemize costs for a business run out of your home.  The IRS is not going to punish you as long as you can legally justify an expense in accordance with tax practices.  Think about it this way: what time you spend on completing the longer Schedules C may benefit you by granting you extra tax savings.  An accountant is best qualified to help you make the choice and decision between long and short Schedule C forms.   

How To File A Schedule C & Some Other Tips    

Recordkeeping, Recordkeeping, Recordkeeping…good recordkeeping is an absolute must if you want to get your taxes done the right way. If you keep your records in check, you can rest assured that you will have everything you need to file on time.  Make sure that all your records are kept safe and secure should there be an unfortunate disaster such as a fire.  Keeping things organized and stored in the cloud or on a zip drive is helpful also.   

Because self-employed taxpayers have the option to make quarterly payments, you should process estimated payments, which cover your self-employment tax for social security as well as your income tax.  Luckily, you can make your estimated payment electronically by using the Electronic Federal Tax Payment System (EFTPS).   

Contact Scott M. Aber CPA     

At AberCPA, we know how important your small business is to your livelihood.  We are here to make sure that your business thrives even in tough economic climates. For all your Schedule C Filing needs in New York Tri-state Area, contact us at (845) 215-5969 to use speak with us directly or use our online contact form and we will get back to you shortly.

 

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