The IRS allows self-employed individuals to use one of two forms: the Schedule C or the Schedule C-EZ. If you meet the requirements to file using from Schedule C-EZ, the shorter form can save you time on filing your taxes. In order to file using Schedule C-EZ, you must: have no more than $5,000 in business expenses; use the cash method of accounting; not have inventory or a loss; not claim home business office expenses and not have any employees.
The purpose of Schedule C is to determine how much of your self-employment income is taxable. When someone works as an employee, all of the wages are taxable. When you are self-employed, you are allowed to deduct the costs of engaging in your business so only your profits are treated as taxable income and used to calculate your self-employment taxes.
Your income from your self-employment can be reduced by a variety of allowable expenses that you can report on Schedule C or Schedule C-EZ. When you file Schedule C-EZ, you can simply report the total of your expenses. On Schedule C, you must itemize your expenses by category. These expenses can include advertising, vehicle expenses, legal services, supplies, taxes and wages that you pay to employees.
You must file Schedule C or Schedule C-EZ if your self-employment or church income exceeds the annual limits set by the IRS. As of 2010, the self-employment income threshold is $400 and the church employee income threshold is $108.28. If your income exceeds these limits, you must file Schedule C and Schedule SE, which is used to determine how much you owe in self-employment taxes.
You do not have to submit proof of your expenses, such as receipts, when you file your Schedule C. The only documentation you need to provide is information on your vehicle, such as the total number of miles you have driven. However, you need to keep accurate records because if your return is audited and your deductions questioned, you will need to provide proof to the IRS.
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