Schedule C is an attachment to the federal Form 1040. You use this form to report profit or loss from a business that is a sole proprietorship or an LLC that is set up as a disregarded entity with the IRS. Additionally, if you receive a 1099-MISC you will need to file a Schedule C. In this article, we will go over what information you need for your tax preparer to file your Schedule C.
To help your tax preparer, you will need to provide them with several accounting reports. The first is a Profit and Loss statement. A P&L statement summarizes all your income and expenses over the entire year, condensing the information that your tax preparer will need. The second report is a Balance Sheet. This report summaries the company’s assets and liabilities. It helps your tax preparer see if you might need to depreciate or take deductions for any loan interest.
If your business deals with any type of inventory, there will be additional documentation that you need to gather. First, you will need to determine the amount of inventory you had at the beginning of the year. Then you will need to figure out the cost of labor for inventory purposes. This would include wages and salaries to employees that work in shipping and warehouse areas, materials used in your products, supplies used to prepare products, and the cost of shipping. Then, if you purchased wholesale and resold inventory at resale value, you will need to determine how much you spent on purchasing. Lastly, you will need to see what your inventory was at the end of the year.
Travel and Automotive
If you had to travel for business reasons you will need to provide your tax preparer with the cost of flights, hotels, and meals associated with those trips. If you put mileage on a vehicle for business purposes, you will need to provide your preparer with the number of miles you put on for work, as well as the total miles put on that vehicle for the year. Be sure that you keep a detailed mileage log in case you are ever audited. If you use a vehicle for business purposes, you will also need to provide the purchase price of the vehicle for depreciation purposes.
Home Office Deduction
If you have space in your home that you set aside solely for business purposes you have additional deductions at your disposal. To claim them, you will need to provide your tax preparer with some important information. First, you will need to give them the total square footage of the office space along with the total square footage of your home. Then you will need to give them information on such expenses as:
- Home Mortgage Interest
- Real Estate Taxes
- Homeowner’s Insurance
- Repairs and Maintenance
- Internet and Phone Services
A portion of all of these household expenses will be deductible on your Schedule C. If you are unsure of the percentage, provide the totals to your tax preparer and they will be able to help you calculate them. You can also find that some expenses can be deducted for supplies and furnishings for your home office, so if you’re wanting to consider how to use your space best using the correct furniture, you can also find that some of these expenses can also be deducted.
Other Business Expenses
You should also make sure you have information on other expenses such as your phone, computer expenses, business insurance, office supplies, professional fees (1099s), and interest on loans. If there is anything you think may be deductible, make a note of it and your tax preparer will help you determine if it is permissible under current tax legislation.
Filing Your Schedule C
It is our hope that this article helps you prepare what you need to file your Schedule C. It is important to remember to keep detailed and accurate records of all income and expenses. Keep them in a safe place where they will not be lost or damaged. If you have trouble keeping track of your business financials during the year, you may find that hiring an independent bookkeeper is a helpful and cost-effective solution. Whatever your situation is, get your taxes filed as soon as possible to avoid any late fees and penalties.
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