Preparing IRS Schedule-C for Business: What You Need to Know

Schedule C, Profit or Loss From Business (Sole Proprietorship) is one of those tax forms that looks simple, but is baited with many traps for the unprepared tax professional. 

It’s just a two-page form, so Schedule C looks simple enough—but looks are deceiving. Filing the Schedule C requires a wealth of tax knowledge. Just filling out the header requires the tax preparer to deal with accounting methods, material participation tests, and the requirement to file 1099s. Feeling overwhelmed yet?

Moving ahead with Schedule C then has us confront the many (and not always obvious) different types of income, as well as when and how to report cost of goods sold, rather than utilizing the non-incidental supplies option.

The expenses section requires knowledge of the various ways in which vehicle expenses are taken (and the recording requirements for those deductions), reporting quirks like how to calculate your client’s cell phone expenses (no, not the whole bill), and the minefield called “depreciation.” 

Let’s not forget the inevitable at-home office. Does your client really meet the qualifications for an at-home office? What’s the best way to take those deductions? What about depreciating the at-home office? We have to know how to correctly file Form 8829 for almost all of our Schedule C clients. 

And, of course, we’re still dealing with COVID-19, so Form 7202 may be required to get your client a tax credit for business income that may have been lost as a result of that client being affected by COVID during the first three quarters of 2021.

If you’re looking for answers on how to fill out this confusing form, you’re in the right place. I’ve created a CPE course that walks you through these many tax difficulties using a case study, with special attention paid to vehicle expenses, depreciation for small businesses, and the home office. 

Nothing feels as good as being comfortable with Schedule C! Register for the free course below.