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hello my name is katie senors with st noor's wealth management and in this video we're going to do a walk through schedule c form 1040. let's get going if you're using a tax preparation software or services of a tax accountant still you need to locate schedule c with the instructions you can type schedule c into your search engine whatever you're using and look for the irs.gov website it will be about schedule c form 1040 or 1040 sr it's profit or loss from business for sole proprietorship if you'll see here the top link is schedule c in pdf form and the second link is for the instructions for schedule c you can do print version and pdf or ebook if you want the pdf is fillable i highly recommend using tax preparation software or tax accountant since it's complex just to do it on paper but you should download and give the instructions for schedule c you're going to refer to them while you prepare new taxes you can choose the instructions that you can click and go buy items say grocery seats and it will bring you to a specific place in the page or you can also do the print pdf version and now you have the searchable pdf file which is 18 pages long let's get to the form but before i would like to go over the items that you will need in order to prepare your schedule c the irs instructions for schedule c your social security number if you have ein which is employer identification number please locate that one you can find it on your letter that you received after you submitted ss44 an income statement for the tax year or profit and loss statement p l your balance sheet receipts or statements for any business purchases regardless it's a large item like a vehicle or small items like paper and if you sell something like t-shirts or pens you're gonna have to have inventory count and valuation and your mileage records let's start with the form you can find detailed explanations and the instructions but i just want to pay attention to couple items that might be confusing as i said earlier schedule c is profit or loss from your business this is for a sole proprietor if you're a freelancer you're driving uber your real estate agent or say you're a single member llc so it means just you your sole owner the first part up top from a to e it will be your general information that will be your name name of a proprietor your social security number principal business or profession say you feel plumber you include plumbing services real estate agent uber driver in section b right here you're going to have to enter code from the instructions that's your specific business or profession code if you're using a tax preparation software you're gonna have something as drop down box where you can go and pick the code if for some reason it's not working out for you you can locate it please go to the instructions at the bottom of the page almost to the end you will see principal business or professional activity codes you have to select your industry and then look up your specific business under those sections you will need a six digit code next to it let's get back to the form you located the code from the instructions your business name if you don't have a separate business name for your business you can just leave it blank and don't worry about it also if you have employer identification number ein you have to include it over here under your business code section e will ask you about your business address please do not put po boxes if you don't have business address and you work out your home you can just leave it blank it's going to refer to the address on 10 40. items f through j will ask you about your accounting method majority of small business owners use cash method of accounting if you sell items on credit or you have accounts payable receivable in your statements you're probably gonna have the accrual method choice number three is highland likely next it will ask you if you materially participate in the operation of this business this means basically that you work in your business you're running the business you're gonna have to mark yes if you started or purchase the specific business in the current year you have to mark the box too if you made any payments in that year to independent contractors and you have to file forms 1099 you have to mark yes this is for independent contractors that you paid more than 600 during the year if you did mark this box as yes you're gonna have to put yes for box j otherwise um you're gonna be in trouble part one is about your income first box will ask you about your gross receipts so anything that you made during the year if you're a service provider what are your receipts for the services if the you sell something like t-shirts or picture frames whether you grow sales if you're selling something and you had some returns from your clients you're gonna have to include them in box too cost of goods sold if you sell t-shirts you have to pay for those t-shirts and we come back to it because we're going to have to pull the number from line 42 and then you arrive at your gross profit if you have any other income that doesn't come from your general operations of your business on line six you're gonna have to include this income say if you have a business account and you received some interest income from that business account that's where you include your interest line seven will get to your total amount of your gross income part two will ask you about your expenses majority of the expenses in part two they're self-explanatory i would like to just go over some items because sometimes they cause a lot of questions when people try to prepare their own taxes [Music] for car and truck expenses you might use standard mileage or you might use actual expenses some people think okay standard mileage is much easier then you have to keep a precise log of all your business mileage driven if you're using actual expense then you have to keep all the receipts for your gas fill ups oil changes car washes etc next i would like to talk about contract labor any contract labor that you hired people to do a specific job even say if it's hourly or to complete some kind of project that's where you're gonna put the amount that you paid to those people do not include any amounts that you paid for wages on line 26 these are for your employees for your w-2 people this is just independent contractors line 13 depreciation if you made some large purchases throughout the year say you bought a vehicle or trailer you may not expense all of it in your part two you're gonna have to depreciate it so depreciation means you write it off during specific amount of years any time that you have a depreciation schedule gonna depreciate some big purchases i highly recommend using a tax professional it can get really complex you don't want to attempt this on your own also would like to talk about box 18 this is your office expense you will include only office supplies like paper pencils staplers and you postage in here if you have any other office expenses you will have to include it in other expenses next item i want to talk about is your 24 b box those your deductible meals usually deductible meals for business expenses they're limited to fifty percent of your real cost say you spend two thousand dollars on business meals during the year but you will include only a thousand in your line 24b plus all those deductible meals they have to be related to your business keep your receipts and any kind of tracking information with dates and amounts and the purpose for those uh lunches and dinners when you use your p l you profit on loss to fill out the part two expenses if you have something that you cannot allocate to any other provided boxes you can put them online 27a other expenses and if we'll scroll down this is our part five of schedule c other expenses so basically anything else that you have that is a business expense and it doesn't fit in the box above you're just gonna include item by item here of course with the amounts and then you'll take the total on line 48 for your total other expenses you will include it in here 2017 with the box 28 which your total expenses before expenses for your business use of home you have to add lines 8 through 27a this amount here should basically match to the total amount of expenses on your profit and loss statement for the exception of deductible meals because it's going to be a 50 limitation so that's how you can check yourself if you're profit and loss statement for the expenses and total amount on line 28 is drastically different please check all the boxes it means you have an error somewhere if you use your home office you can deduct it as expenses for your business use of your home you don't have to report these expenses anywhere else if you do not use the simplified method you're going to have to attach form 8829 with your schedule c what is the simplified method simplified method where you enter the total square footage of your home and the part of your home that you use specifically for a business as a safe harbor the irs allows you to use a flat calculation of five dollars per square foot with a limitation of 300 square feet which comes down to fifteen hundred dollars once you're done and you calculated your expense for business use of your home you will see your net profit or loss on line 31 right here the profit amount will go on both schedule 1 of form 1040 line 3 and on schedule se self-employment line 2. cost of goods sold if you recall we were talking about cost of goods sold in part one for income so if you're selling items like t-shirts picture frames you might have a cost of goods sold and to come up with that number for your income you have to go to the box in part three right here you'll see cost of goods sold method use to value closing inventory i have to go over that if you're using a cash method you're going to have to use a cost method of valuing your inventory also include cost of labor if you have anything else materials supplies and other cost and you're gonna calculate the number on line 42 that will be your total and that total from line 42 will go on line four and your section part one income right here if you're using your personal vehicle for business purposes you're gonna have to fill out the information in part four you're gonna have to complete this part only i repeat only if you're claiming car or truck expenses on line nine and you're not required to file a form 4562 for the business so it means you do not depreciate the vehicle include the information when you place the vehicle in service total amount of miles you drove then you have to provide a breakdown for business mileage commuting and other also you're going to have to answer a couple questions regarding availability of the vehicle for personal use and if you have another vehicle for personal use and the most important 47 a and b they will ask you do you have evidence to support your deduction you want to have those and you want to have the box yes checked on that they want to have evidence in written form please keep good records of your vehicle expenses this is all for today if it's a simple return you can do it yourself using the tax preparation software if it's getting too complex please reach out and use tax professional to help you thank you for watching [Music] bye [Music] you