Prosperity Tax Academy Schedule C (Form 1040) Click on PowerPoint to advance to next slide.

Introduction In this section of the training course we’ll discuss form Schedule C. This form is reserved for self-employed individuals who are not set up as a legal business entity and also for single-member LLCs. If your client has their own business (self-employed), they must file a Schedule C to determine their taxable income. Each type of business has a six-digit code that categorizes the type of business. It is important that each business is properly classified to minimize the chance of your client being audited.

Schedule C Form Schedule C is a federal tax document used in reporting how much money you made or lost in your business for the year. Part I of the form covers income such as gross receipts or sales. Part II covers business expenses such as advertising, car costs and legal services. Part III calculates your cost of goods sold … (If a person makes or buy goods to sell, you can deduct the cost of goods sold from their gross receipts. For example, if it costs them $10 to make a candle and they sold 25, the COGS is $250.)

Schedule C (continued) Part IV needs to be completed if you are claiming any vehicle expenses. Part V is a fill-in section for any other expenses not previously covered on the form. Schedule C is typically filed along with Schedule SE, self-employment tax. Do not mix the two self-employment and doing something yourself are not the same thing.

Business v/s Hobby A business is usually undertaken for commercial reasons. A hobby, on the other hand, is doing something you enjoy but for which you receive no official payment. Let’s say you enjoy knitting and a friend ask you to knit a hat for her and she’d pay you. Once finished, you charged your friend $5.00 to cover the cost of the yarn. This would be considered a hobby and not a business.

Independent Contractor Anyone that’s in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. As a rule of thumb, an individual is an independent contractor if they stand to gain a profit or suffer a loss as a result of their services.

Independent Contractor For example, an independent tax preparer prepares taxes at their home office and incurs expenses that include: internet cost, purchase of desk, office chair, computer, printer, paper and other miscellaneous supplies which equate to about $1,800. The preparer has the potential to gain a profit or suffer a loss and is thereby classified as an Independent Contractor.

Types of Independent Contractors An independent contractor must report all income received from their business unless it is excluded by law. Here are a few self-employed business types. Barber Painter Lawn Care Child Care

Independent Contractors Codes on Schedule C Inside the software is a list of codes that link to different types of independent businesses. Types of Businesses are grouped into categories The F3 (quick key) will pull up the code list Let’s view a few! Transportation 484110 Tax Preparation Services 541213 Other Accounting Services 541219 Barber Shop 812111 Beauty Salons 812112 Child Care 624410

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