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Schedule C

• Form 1040, Schedule C, Profit or Loss from Business
The famous “Schedule C” -- the mother of all tax forms for small business -- is where you show your net self-employment income (or loss), which is the result of gross income minus business deductions. Schedule C’s total will be carried onto your main Form 1040 U.S. Individual Income Tax Return which sums up your entire personal tax picture.

Approximately 19 million Schedule C forms are filed in the U.S. annually, so this represents the vast majority of business returns since only six million corporate and 2.5 million partnership returns are filed.

Although these other business entities (partnerships, Limited Liability Companies (LLCs) and corporations) don’t specifically use Schedule C, they roughly follow a similar process for accounting for business income and expenses. Their returns become more complex because, among other reasons, they have diverse options for how profits and losses flow from the business to its owners.

• Form 1040, Schedule C-EZ, Net Profit from Business
You can file this mini Schedule C-EZ if, during the year, you:

  • Had business expenses of $2,500 or less
  • Used the cash method of accounting
  • Had no inventory
  • Did not have a net business loss
  • Had only one business as a sole proprietor
  • Had no employees
  • Are not required to file Form 4562, Depreciation/Amortization
  • Do not deduct expenses for business use of your home
  • Have no prior year unallowed passive losses from this biz

It’s a little piece of cake. Too bad most forms can’t be this easy.

Who doesn’t file Schedule C

  • If your business is a partnership, it files Form 1065 for annual return of income and distributes K-1 Forms to partners

  • If you are an individual partner in a partnership, your annual return of income is Form 1065 and Schedule E-3

  • Corporations (C corps) file Form 1120 or 1120-A to report income, plus 1120-W for estimated tax with Form 8109-2 (a deposit coupon)

  • If you are the S corporation shareholder, you file file Form 1040 and Schedule E-3 -- then 1040-ES for estimated tax

  • LLCs (Limited Liability Companies) can elect whether to be treated as a corporation or a partnership. Check with your accountant about which way you should go and what forms you’ll file.

DISCLAIMER: We have provided this information to give you a general introduction to tax issues. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Neither Idea Cafe Inc. nore any of its sponsors or advertisers make any representations or warrantees regarding this publication or its accuracy. In no event shall Idea Cafe Inc. or any of its sponsors, advertisers or affiliates be liable for damages, including incidental or consequential damages, in connection with or arising out of the performance or use of this publication. By utilizing this information, you are agreeing to our full terms of use.

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