Schedule C - What expenses go where for your business?
This is the promised list of where to put business expenses by category on a Schedule C for your taxes. Hang on to it. Print it out. This doesn't change. Also, lumping all of your expenses together and sticking them under misc. is possible, but it gives the IRS computer a case of heartburn. Instead of Tums, the IRS computer could call for an auditor to chomp on the offending return. Then you still have to break this stuff out anyway. Comments from other tax preparers are welcomed (the 2006 tax code was the same word length as 10 king james Bibles, For one person to know all of that would be insane) - Oh, and if you are one of the ones that requested this, I hope it helps. You know to use at your own risk (standard disclaimer, all cases different, etc, etc, blah, blah, blah, due diligence, and all that stuff)
First two special situations -
If this is the first year for your business, you have a box to mark on the form (or a question on the automated program to answer) BE SURE YOU MARK THIS. A startup business has more expense than one that is underway. That is taken into consideration.
If you expected a W-2 and got a 1099-MISC with box 7 filed out, you are your own business - surprise! You may have done landscaping, personal training, painting, office work, the list is endless. By paying you this way, your employer didn't have to pay benefits, Social Security, or Medicare. If you are not certain, look at your last pay stub. If there are deductions for Social Security and Medicare, you are on a W-2, Otherwise, you are a contractor.
If this is you (the sudden personal business), figure up the number of days you went to work. Google the distance from your home to your work (double it to get a round trip). Round trip mileage multiplied by days worked is the basic business mileage you can claim. Use a form CEZ. The first half of the year, each mile driven takes 50.5 cents off of your income. The second half of the year, the rate goes up to 58.5 cents per mile. If you take this, you cannot deduct new tires, repairs, gas, or any other car expense, but it will also reduce your income drastically. The place you worked is considered the place you commuted to. Other of these expenses may apply. Usually you can use the short form of CEZ. - Lots easier!
Advertising (line 8) - advertising and promotional costs like print or media ads, business cards, mailers, brochures, wavers out front, signs, pens and give-away items with the company name, samples or freebies to promote business, Include here also any sponsorships like buying an ad in a high school sports program to promote the business (AAA business wants to wish the Warriors a great season)
Car/Truck expense (9) - mileage cost for your vehicle (figured on part II of sched C) OR (and you only get one or the other) from Form 4562, your gas, oil, repairs, insurance, depreciation, license tags
Commissions/Fees (10) - Vary by state and locality - Business license, medical license, vendor fee for set up in a public place, inspection fee, any fee which must paid in the course of opening your business
Contract Labor (11) - Landscaper, Electrician, Remodeler, Cleaning service. You hired a contractor to handle some one time job like replacing a roof or an ongoing chore like keeping the landscaping up to par so that you don't have to. The key is that you hired a company to handle this.
Depletion (12) - Rare - Are you working with an exhaustable natural resource (mining, wood, quarry)? If not, skip this. If so, get help from someone who has dealt with it. I have not.
Depreciation and section 179 expense deduction (13) - The gist of this one is that when you buy a large ticket item for your business, whether it is a car or a computer, there is a table that will tell how long it should last. Each year, you get to write of a portion of that cost so that at the end of the item's life, you have effectively written the whole thing off. You will need some help on this as well.
Employee Benefits (14) - For your employees only - health, accident, life insurance premiums; also, dependent care, education or adoption assistance, even achievement awards for long service, any benefits that you supply to your employees. (You can deduct your health insurance premiums on line 29 of your 1040 or as part of the medical deduction on Sched A, POSSIBLY)
Insurance(15) - Again, Not your insurance (see 14). This insurance is for your business and for the operation of your business. Examples would be liability (the coffee is hot, maam), fire (yes, maam, really hot), theft, robbery, flood, hail, volcano, Acts of God, [too much? okay]
Interest (16) - Interest on loans to finance your business, on credit card charges for business expenses, and interest on a vehicle loan for car or truck used in business (if car used 1/2 time in business, deduct 1/2 interest here, 1/2 on sched A-which you may or may not need) Just as a word of warning here, If you are going to be doing a lot of credit card purchasing for business needs, you would do well to open a card just for your business and keep the accounts separate.
Legal/Professional Services (17) - fees for tax advice and tax preparation (boy, do I wish I knew where to send a bill *sigh* - rec maybe?) And in the infinite wisdom of our tax system (you will love this one) only the cost of preparing the sched C, CEZ, SE, 4562, 8829, and accompanying worksheets can be deducted here because they have to do with your business) Figure that at $100-$300 per business. If you and your spouse have separate yours, mine, and ours businesses, for instance, that could be $300-$900 depending on the complexity. Other business professional services can be included here. I put accounting, payroll, and reference firms under contract labor on line 11. Other tax preparers may put them here. Either works.
Office Expenses (18) - Office Supplies - Ink, paper, toner, pens, staplers and staples, paper clips, folders, and, guess what? If you have an office with a public bathroom, then use that company credit card to buy hand soap, towels, toilet paper and the rest because it is deductible too. Coffee service is here if for clients. You can put snow removal, lawn care, cleaning service under this also. Remember that the name of the game is to spread the expenses out so that you have something under as many spots as possible.
Pensions/profit-sharing Plans (19) - This is where you add in the cost of any contributions you made to pensions or profit sharing plans for your employees. Once again, you will look back to your 1040 form, on line 28 to record any contribution that you made for yourself. (and of course, once again the line 28 of 1040 comes with the modifier MAY be able to take)
Rent or Lease (20) - You have two lines here -
20a - this is for leasing a vehicle, machinery or some equipment. (if you kept the lease going for more than 30 days, you may need to look into something called the inclusion amount which may reduce the amount that you can put on this line)
20b - this is for payments of office rental or rental of other spaces for storage and any real property leases that didn't fit onto 20a
Repairs and Maintenance (21) - This one refers to cost of labor, supplies and any other items that do not increase the value or life of the property. It broke and you had it fixed. If you fixed it yourself, you cannot pay yourself and then deduct the labor. If you replaced whatever broke with something new, you need to put that under a new purchase - 13 for a big item, 18 or 22 for a small item.
Supplies (22) - Are you producing a product? What do you need to create it? What must you order to have it in stock? Those are your supplies. Put the cost of them here. Do not include your inventory. (Cloth for a seamstress = supplies, cloth for a cloth store = inventory. The first example belongs here. The second does not.)
Taxes (23) - If you don't take a tax off somewhere else, it falls into this category. Look at it like this - on an office space, it goes in with the rent but not here. Sales tax on merchandise you sell is turned over to the state and not reported here. HOWEVER - You can deduct real estate and personal property taxes on business assets, employer's share of FICA taxes, federal & state unemployment tax aid, Federal highway use tax, business permits, and licenses and taxes on a car or truck used in business (if car used 1/2 time in business, deduct 1/2 taxes here, 1/2 on sched A-which you may or may not need)
Did I hear someone say that they hate taxes?
Travel, Meals, Entertainment (24) - Not even going here - You have to be away from your "tax home" overnight. That means away from where you do business, not away from where your family lives. The expenses have to be business related. There is a portion of the schedule C to enter these expenses and then you will get to deduct either 30 or 50% of the total allowable. The 3 martini lunch is folklore. Wiped out by an overzealous media. Business travel is mainly a lot of very unhappy people sitting 1 to a table, wishing they were somewhere else. And Not at all the glamour painted. Even in the so-called hot spots. Oh, the entertainment part. You and a client and you need to be getting some business done. Sorry
Utilities (25) - If it is directly related to the business, list it here. Telephone, lights, gas, etc. If you have a separate office away from home, deduct 100%. If you have a pager or cell that is business only, 100%. If you use part of your home, take the square footage of the home, the square footage of the work only area and that will give you the percent of work space in your home. If it is 15%, take 15% of your utilities. (A construction worker that housed his truck, fully loaded with tools, in a locked garage where the only other things were a desk and storage for more work tools could legitimately claim the garage as a home office - if no one else ever parked there)
Wages (26) - Wages, salary, and bonuses. Medicare and social security that you pay on employees goes in this category as well.
Other Expenses (27) - You spent it on the business and would not have needed it except for the business. You only used it in the business. Put it here with an explanation of what it is.
Just one last thing,
If you go in to a tax professional and say, "I'm not going to declare all my income this year." That person should request that you leave. He or She is going to be signing at the end that "to the best of my knowledge this return is full and complete." If it isn't, your tax preparer just lied to the IRS, so why do you think you were not lied to? I will try to find every legitimate way for a person to keep every bit of their own money. Every legitimate way. Good Luck All!