Sole proprietors are great at running their own business, but not always so great at doing their own taxes. Tax forms are burdensome, and categorizing expenses and depreciating business equipment are complex calculations. Unfortunately, most sole proprietors also don’t have the luxury of an accountant to handle filing their taxes. Here’s advice on filling out the Schedule C tax form, to help you plan for next April 15th:
1. Who should file a Schedule C? Whether or not you file Schedule C depends upon your type of business entity. You should file a Schedule C if you’re a sole proprietor, a single member of a limited liability company electing sole proprietorship status, a statutory employee, or a minister.
2. Check for hidden deductions. There are a number of deductions that small-business owners and the self-employed don’t think of when filing taxes. If you work out of your home, your office may qualify for a deduction. Same with business use of your car — do you drive to the post office or a client site? Those miles may add up to a deduction. Many lines on the Schedule C form prompt the filer to think about deductions, such as line 21, “Repairs and Maintenance” costs, or line 22, the cost of “Supplies.” Be sure to go through each line and consider your deductible costs.
3. Look for help. Even small businesses on a tight budget can get quality tax filing advice. The IRS offers a toll-free help line (800 829-1040) as well as a number of free publications on their Web site offering assistance in filing a tax return. In addition, the National Association for the Self-Employed publishes Schedule C from A to Z, a line by line guide for sole proprietors completing the tax form Schedule C. It’s available through the NASE Web site (www.NASE.org) or on Amazon.com.
4. Check your math. Most of the mistakes on tax returns are simple addition and subtraction errors. Then, check your math again.
5. Start thinking about next year. While small businesses may be tempted to finish their return and not think about it again until April rolls around again, now is a great time to starting thinking about how to reduce your tax liability for next year. Consider deductions for a home office or employing your children. Create a medical reimbursement plan, which would enable the business to reimburse the employee for all out of pocket medical expenses. Reconsider the tax implications of incorporating your business. And research retirement plans designed specifically for the self-employed, including an IRA, SIMPLE, SEP and Keogh plan.
National Association for the Self-Employed