IRS Schedule C Walkthrough (Profit or Loss from Business)

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Below is a list of articles and videos we've created to cover the tax forms and schedules mentioned in this video or its accompanying article:
IRS Form SS-4, Application for Employer Identification Number
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IRS Form 8582, Passive Activity Loss Limitations
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IRS Form 1099-MISC, Miscellaneous Information
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IRS Form 1099-NEC, Nonemployee Compensation
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IRS Form W-2, Wage and Tax Statement
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IRS Schedule 2, Additional Taxes
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IRS Form 1099-PATR, Taxable Distributions from Cooperatives
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IRS Form 4562, Depreciation and Amortization
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IRS Form 2441, Child and Dependent Care Expenses
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IRS Schedule A, Itemized Deductions
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IRS Form 8941, Tax Credit for Small Employer Health Insurance Premiums
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IRS Form 8990, Business Interest Expense Limitations
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IRS Form 1098, Mortgage Interest Statement
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IRS Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips
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IRS Form 461, Limitations on Business Losses
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IRS Form 4684, Casualties and Thefts
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IRS Form 5884, Work Opportunity Credit
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IRS Form 8845, Indian Employment Credit
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IRS Form 4797, Sales of Business Property
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IRS Schedule E, Supplemental Income
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IRS Schedule F, Profit or Loss from Farming
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IRS Form 6252, Installment Sale Income
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IRS Form 8824, Like-Kind Exchanges
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IRS Form 8995, Qualified Business Income Deduction Simplified Computation
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IRS Form 8995-A, Qualified Business Income Deduction
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[@NurseLita3541]

You're so kind for doing these videos. Thank you very much!

[@tiesharenae12]

If only half the money on my 1099 is actually profit do I show that in expenses. Or do I still pay taxes on the entire amount. I buy jewelry to resell and pay for postage and ink. Not sure how this works it’s my first time. Thanks.

[@teachmepersonalfinance2169]

If you go through Schedule C, you'll see that Lines 1 through 7 result in gross income. However, nothing goes on your tax return until you get through Line 31, where you calculate your net profit or loss. By the time you get to Line 31, you'll have enough opportunities to include your legitimate expenses (postage, cost of the jewelry, home office expenses, advertising, etc.), so that Line 31 reflects your actual taxable profit. You'll enter your profit (or loss) on Schedule 1 and Schedule SE. Those schedules will eventually flow through to your Form 1040.

[@vanessacollins3997]

Thanks so much . I started my business from a hobby in December 2023.Which i had inventory already and purchased more. Now, can i claim inventory from that hobby that i purchased during the year 2023?

[@teachmepersonalfinance2169]

I'm afraid that I don't have enough information here to answer this question. If your business has inventory, then you may need to sit down with a tax professional to make sure that you account for everything correctly. Here are three main questions that you should look to answer: 1. With my business situation, how would the IRS expect me to treat my inventory, for tax purposes? 2. Method of accounting: What method of accounting am I expected to use? If I am able to choose from more than one type of accounting method, which method would be best for my situation? 3. How should I record my transactions throughout the year so that I am keeping track of the information that I need for filing my tax return?

[@alexandramkalinowski7912]

Thanks so much for this walk-through! If I started a single-member LLC in 2023 and personally funded the start-up costs, do I enter this funding anywhere? Like on Line 1 or Line 6?

[@teachmepersonalfinance2169]

According to the form instructions, you can deduct up to $5,000 of certain business startup costs in the year that you create your company. However, there is a dollar-for-dollar phaseout if your total startup costs exceed $50,000 (i.e. if your costs exceeded $55,000, you wouldn't be able to deduct anything in the current year. The remaining startup costs must be amortized over a 180 month period (15 years), beginning with the month that you started the business. You would amortize these costs on IRS Form 4562, Depreciation & Amortization (see below). IRS Form 4562, Depreciation and Amortization Article: www.teachmepersonalfinance.com/irs-form-4562-instructions/ Video: kzbin.info/www/bejne/r6TbgYp-abVrrpY

[@alexandramkalinowski7912]

Thank you@@teachmepersonalfinance2169! Really appreciate the reply and help

[@digitaltamer]

Hi. Thanks for the video. I can't seem to find where to categorize two things. If you go to a conference where you're speaking, where does the cost of the conference ticket go? Also, subscriptions to things like Audible where only work related books are ordered? I found someone said membership fee, but I don't see that as an option. Would I create my own line item under other expenses?

[@teachmepersonalfinance2169]

You can deduct the cost of books (including audio books) under Line 22. You generally can list the conference-related expenses under Line 48 of Schedule C.

[@109prettyinpink]

Your videos are helpimg me so much! I do have a question if you could answer or point me in the right direction. How should i treat an incorrect 1099 nec. Its showing more than actual reciwved and have contacted irs to get a corrected one but looks that i wont recieve one before tax due.i have read a couple different ways to go about it but not sure if i should do estimated tax due and an extention or write a negative amount for the overpayment and attach an explaination and proof?

[@teachmepersonalfinance2169]

Below is a link to the IRS page that tells you what to do in the case of a missing or incorrect Form 1099. According to the page, you should not file with incorrect information (because then you may need to file an amended return when the info is corrected), and you should not file late. You should try to contact the person or company that paid you and see if they'll re-issue a corrected version. Side question: Did the IRS give you any specific advice about how to report this? If not, then you should call and go over the situation with the IRS representative. Generally, you should receive actionable advice on how to report this on your tax return. www.irs.gov/newsroom/what-to-do-when-a-w-2-or-form-1099-is-missing-or-incorrect

[@MissRis86]

What line do I report my owner's draw?

[@alexavendano681]

that was great! thanks

[@rosem4741]

For line 20b is that for rent you paid in your apartment if you use it daily as a yoga/ meditation online instructor ?

[@teachmepersonalfinance2169]

You *can* deduct a part of the rent or mortgage that pertains to the business use of your home (but not the entire cost). The IRS provides a worksheet that allows you to calculate the prorated amount that you can claim as a deduction on Schedule C. Check this video out to learn more: kzbin.info/www/bejne/raezhIRjoqiqaLs

[@PurpleOuchie]

Hi, very informative. Have a question about claiming gambling winnings & losses. We file married jointly but the husband works full time & has a sm business . I won money playing slots but also lost a lot. Where would we show this income & loss. I think we're going to have to use a schedule C for the business can we show the gambling winnings & also deduct the losses using a schedule C or should we use the schedule C & also a schedule A for that other income?

[@teachmepersonalfinance2169]

Unless your husband's small business is a gambling associated business, then you would report gambling winnings as additional income on Schedule 1, under Line 8b. You may deduct gambling losses as an itemized deduction on Schedule A, but only to the extent that your losses do not exceed your winnings. For example, if you won $5,000 but spent $10,000 over the course of the year on gambling, then you would: 1. Report $5,000 in gambling winnings on Schedule 1 2. Report up to $5,000 of gambling losses on Schedule A You should also have written records of your gambling expenses, in case you are audited by the IRS. Here are additional resources on Schedule 1 and Schedule A: IRS Schedule 1, Additional Income and Adjustments to Income Article: www.teachmepersonalfinance.com/irs-schedule-1-instructions/ Video: kzbin.info/www/bejne/ioawn5idotOceqs IRS Schedule A, Itemized Deductions Article: www.teachmepersonalfinance.com/irs-schedule-a-instructions/ Video: kzbin.info/www/bejne/Y2i8hqqHa7Zkgqs Playlist: kzbin.info/aero/PLYHzJrFFCrpy1rgmUyp_4JMBnBvphyqB6

[@PurpleOuchie]

@teachmepersonalfinance2169 Very helpful, thank you so much. Are you a tax preparer or are you mostly a financial planner. I think I'm going to have to get help with the business part of our taxes. But I'm in the Midwest, it looks like you work mainly in Florida.

[@MediaCreators]

Wonderful video! Thank you for your hard work. I have a question. If a nurse with a taxable income of $85,000 starts a side business, my understanding is that the IRS permits up to $5,000 in tax deductions for startup costs and organisational costs in the first year. Can these $5,000 be claimed as a lump sum under other expenses in the first year, even if the actual costs were lower, or do they require all invoices for verification?

[@teachmepersonalfinance2169]

I believe that the intent was to allow up to $5,000 in startup costs to be deducted in the first year of business. Any startup costs above and beyond generally must be capitalized over an 180-month period (15 years). With that said, I do believe that you have to have incurred those costs in order to deduct them. For example, you can't simply claim $5,000 in startup costs if your actual costs were only $2,000 in the first year.

[@MediaCreators]

@@teachmepersonalfinance2169 I appreciate your prompt response. I am currently reviewing page 27, specifically the section titled "How to make an election." It appears to indicate that, if I understand correctly, after September 8, 2008, there is no longer a requirement to attach a statement in order to claim the deduction. www.irs.gov/pub/irs-pdf/p535.pdf

[@mohammadalamgir6096]

Cash received $9870 from restaurants but restaurant closed where I gave entry for scheduled C

[@teachmepersonalfinance2169]

I'm not exactly sure how to answer this. Can you rephrase the question so that I can better understand it?

[@SarcasticCzech]

If you have a multi member LLC where do you put the personal expenses incurred? Like mileage etc.

[@teachmepersonalfinance2169]

Business vehicle usage goes into Line 9 on Schedule C.

[@Dotmcs]

Thanks!

[@ParisFinley]

Hello and thank you for your helpful video. I have a question about the 1099 form. I made two payments of $595 via PayPal to a product photography business. Although each payment was under $600, the sum total was nearly $1200. They have not responded to my request to complete a W9 or 1099. How can I proceed and do I have to complete a 1099 NEC or 1099 Form K regarding that expense? Edit: Would my virtual address expense go in the Utilities line?

[@teachmepersonalfinance2169]

You would not need to report payments to a business on Form 1099-MISC or 1099-NEC. However, if this was a requirement, it would be considered a late information return. For future reference, backup withholding rules would apply to any PERSON who does not provide proper tax information. You can find out more about backup withholding here: www.irs.gov/pub/irs-pdf/i1099gi.pdf. For 2023, the Form 1099-K threshold was $20,000 in revenue, I believe. You probably could enter your virtual address under the 'Other Expenses' line on Schedule C. IRS Form 1099-K, Payment Card and Third Party Network Transactions Article: www.teachmepersonalfinance.com/irs-form-1099-k-instructions/ Video: kzbin.info/www/bejne/gZLcYqRrlsetr5o

[@ParisFinley]

@@teachmepersonalfinance2169 Thank you for your response! I paid the owner of the company directly and in the notes, I put 'Product Photography'. My receipts from PayPal has her name stated on them instead of the business, and the service I paid her for. Can I still file as contracted labor, even though she still hasn't gotten back to me? I'm currently filling an amended tax return, because I was unaware that I was supposed to file my business with my personal taxes.

[@teachmepersonalfinance2169]

@@ParisFinley I think that you should discuss this with a tax professional, who can help you properly categorize your business expenses and report them correctly on your tax return.

[@ParisFinley]

@@teachmepersonalfinance2169 I think so too. Thank you again for your help today. I really appreciate it 😊!

[@user-gk1dx6db9x]

For Cost of Good Sold Part III. If it is a service oriented business, such as a tint shop. Would the tint they have on hand at the end of the year be considered inventory?

[@teachmepersonalfinance2169]

According to IRS Publication 538, Accounting Periods & Methods, the following items would be considered inventory: • Merchandise or stock in trade. • Raw materials. • Work in process. • Finished products. • Supplies that physically become a part of the item intended for sale. Based on how you described the tint for your business, it seems that tint on hand at the end of the year would be considered inventory.

[@pinklilac7]

If you were paid with Zelle would this be considered cash or other? Line F

[@teachmepersonalfinance2169]

This has nothing to do with the form of payment you received. Instead, this pertains to your accounting method. A cash basis taxpayer records income and expenses when the money changes hands. An accrual basis taxpayer records income or expenses when they are earned or accrued. For example, let's imagine that you sent an invoice to a customer on the first of the month. That customer pays the invoice on the 5th of the month. A *cash* basis taxpayer would record that income on the 5th, when it was received. An *accrual* basis taxpayer would record the income on the 1st, which is when they sent the invoice.

[@rosem4741]

My daughter had to repay some money back to EI and some of that money was taken from her irs and nys tax refunds as offsets. She received a 1099 G from dept of labour and the amount of repayment is in box 2. Under adjustments. What does she do with this? Can she claim it as a deduction? Or is she supposed to claim this as income? It was not income it was a repayment The year prior she used standard deduction and this is the first time receiving a 1099 G for repayments

[@teachmepersonalfinance2169]

If she received a Form 1099-G, with a refund or adjustment in Box 2, but she used the standard deduction (she didn't claim the taxes paid as a deduction), then she probably does not need to do anything. If she had claimed the taxes paid as a deduction, and then received the tax refund, she would have to claim it as additional income on Schedule 1. I've put in more information on the Form 1099-G, as well as Schedule 1. IRS Form 1099-G, Certain Government Payments Article: www.teachmepersonalfinance.com/irs-form-1099-g-instructions/ Video: kzbin.info/www/bejne/m5OXm4errq1-f9U IRS Schedule 1, Additional Income and Adjustments to Income Article: www.teachmepersonalfinance.com/irs-schedule-1-instructions/ Video: kzbin.info/www/bejne/ioawn5idotOceqs

[@rosem4741]

Thank you! The amount in box 2 was for repayments that she made back to unemployment in 2023

[@moniquethompson659]

If you are a independent contractor, how would you claim fuel if you are a truck driver?

[@teachmepersonalfinance2169]

You would use the actual expenses method, where you record and document the actual expenses incurred in operating the vehicle. This would include fuel. Actual expenses would go into Line 9. Any applicable depreciation goes into Line 13, and lease or rental payments (if applicable) would go into Line 20.

[@Jason_Maier]

Now would Schedule C be used by someone who is a franchisee owner of convenience stores, etc.?

[@teachmepersonalfinance2169]

It could be, depending on how your business is structured. If the franchises are under a corporation that the franchisee owns, then the franchisee would use that business structure's tax return, such as a Form 1120-S (for an S-corporation), Form 1120 (for a corporation), or Form 1065 (for a partnership). Income from an S-corporation or a partnership would then flow through to Schedule E, instead of Schedule C. Otherwise, you may use Schedule C. Below are an article and video that discuss Schedule E in more depth. Schedule E, Supplemental Income Article: www.teachmepersonalfinance.com/irs-schedule-e-instructions/ Video: kzbin.info/www/bejne/o3mrXmOHqqdme7c