Posted by Fred Lake

Schedule C: Essential Things to Know About Filing in 2021

Schedule C: Essential Things to Know About Filing in 2021

If you are a freelancer, run a small business, work for yourself, or have a side gig in 2021, it is essential to file IRS Schedule C come tax time. This article sheds light on what IRS Schedule C is, who should file one, alongside simple tricks when filing that can result in some tax savings.

 

What is Schedule C?

This is the tax form specified to report profit and loss for businesses. You will fill and attach it to your tax form during tax time or file it electronically alongside Form 1040. Typically, the form is for LLC with a single member or sole proprietors. 

Form 1099 differs from schedule C, although you might need 1099 when filing schedule C. Two business type owners need to file schedule C: single-member LLC or sole proprietors. It does not apply to S or C corporations. 

  • A sole proprietor operates an unincorporated business conducted by a single individual who is liable for the total business loss and entitled to the profits. Many freelancers, people with side gigs, independent contractors do structure their business as a sole proprietor.

  • Also, an LLC with a single individual is a business entity with one owner. Most times, for the purpose of income tax, the owner and the business are not separated. As a result, all profits and losses from the business are directed into the owner's return.

For people with regular day jobs where you work for someone, alongside a freelance business by the side, the person is also self-employed, which mandates the filing of schedule C alongside the tax return.

  • For tax, Uncle Sam believes you are in business if you are diligent with your gig pursuit for income purposes.

  • For people whose side gig is farming, Schedule F is important

  • For people whose side gig is royalty or rental income, filing schedule E is essential. 


Schedule C: Content of the form and How to Fill 

Schedule C provides the avenue to report income and losses from your business, alongside all expenses incurred while running your business. Your net profit or loss is the business income minus the expenses from such business. Your net profit will be entered as income on the 1040 form.

Here are some filing information you will need:

  • All receipts for business expenses 

  • Inventory records for people with inventory

  • Balance sheet and income statement for the tax year

  • Vehicle records or mileage if you use it for business

 Filing Tips and Tricks for Schedule C 

  • You might get software versions that can prepare schedule C from many tax software brands. Most times, one might need to buy the highest-end version to get something that functions with schedule C.

  • There are cases in which you need to fill out two or more schedule C. You need a schedule C form for every side gig, implying that you will fill three schedule Cs for three side gigs. 

  • Get the measurement of the square footage of your home office. This applies to people working from a home office as they can deduct a couple of expenses that go into operating and running for the self-employed. Uncle Sam gives a $5/square foot flat rate deduction up to 300 square feet. However, there is a probability for a more significant deduction if a large percentage of the square footage of your home is used as a home office and you have high utility expenses. You can support it with detailed records. 

  • Make Sure to take advantage of tax deductions that apply: You can get a series of tax deductions as a self-employed individual. The most recent is the qualified business income deduction which allows you to deduct up to 20% of the net income of your business on your tax return. 

  • Avoid Penalty by Making Quarterly Tax Payments. In the United States, Uncle Sam wants a cut of whatever you make whenever you earn, making tax a pay-as-you-earn thing. This explains the reason why employers have to withhold some taxes from the paycheck of their workers. However, for people working for themselves, there is no boss to deduct this portion for Uncle Sam. This makes it essential to make an estimated quarterly payment to the IRS to avoid late payments.



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Fred Lake
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