Schedule C Form 140 is a necessary form to fill if you are a sole business owner. Filling it out and filing it to the IRS is a must. It is the basic document that stipulates your income or loss from the business for the tax year.
An experienced businessperson may find it an easy task. But if you are new to this or want to double-check whether you do it right, you better read how to fill out 1040 Schedule C the right way. Not only will you find there a free Schedule C fillable form, but also clues on how to fill it out, with an example available right there. Here is a brief introduction to handling Schedule C.
What Is a Business?
In the freelance era of 2021, it’s hard to separate business activity from work. You may work for yourself online or offline; regardless of that, you need to qualify your activity as a business before you calculate your tax return. So, what’s a business? As the IRS specifies, a business is an activity you conduct to gain profits. It also must be done on a regular basis.
A sole proprietor is the one who owns the business completely and has no boss to report to. You may also be the sole member of the LLC, but you have a right not to be taxed as an S corporation. If it’s your case, you also need to fill Form 1040 Schedule C.
For example, moonshining is not a business if you drink your product yourself, with your family or friends. Once you charge someone for a bottle, it becomes an income, but not a business yet. But if you do it on a regular basis, and the price you set grants you some profit, it becomes your business. Of course, if you take care to get all the permits required for that, on both state and federal level – otherwise, it’s a criminal type of activity (that’s subject to taxation anyway).
So, if you have been gaining profits in 2021 from your recurring activity you had started to make money, it’s definitely a business. If, sadly, your business only caused losses in 2020, you can specify your general losses in the same form. For other sources of income (full-time or part-time jobs, gifts, prizes, etc.), you must fill our corresponding forms separately.
Filling Schedule C Form 140
The schedule itself is rather small – just two pages. Most lines on it are obvious and well explained right on the blank schedule C, in comments to most lines. Still, there are some nuances to consider when filling it.
- In line A, write the short description of your business (software development, rodent removal, public lectures, and so on) – the shorter, the better. The code for this activity can be found in instructions issued by the IRS.
- In Line E, specify your business address, not home!
- In Line F, choose your accounting method. The difference between the cash and the accrual method is that the cash income is recorded when it’s actually received, and the accrual method registers your income when your product or service is delivered. You are free to choose between them.
- In Line H, check the box if you had only started your business in 2020.
- Specify whether you have paid your subcontractors $600 or more during the year. If so, you’ll also need to fill out Form 1099.
Income (Part 1)
- In Line 1, write down your gross income, not deducting your expenses or losses.
- In Line 2, sum all the returns by your customers and all the allowances (any forms of discounts) you have ever applied that year.
- In Line 4, copy the figure from Line 42 (part 3) We’ll return to it from there.
- In Line 6, specify the gross income from all the other sources.\
The other lines from this section are well explained right within the form itself. Still, you must recalculate all the figures twice to make it as sure as can be.
Expenses (Part 2)
- Line 9. If you have been using your own car, in Line 9, you can choose whether to put your expenses as they are or to put them as a part of your mile deduction.
- Line 12 and 13 require advice from a pro (unless you are one). Depletion and depreciation are a sophisticated matter.
- Line 18 only requires you to put your postages and office supplies cost (even if you don’t have a dedicated office, you still mail packages, buy paper and pens, and so on).
Costs of Goods Sold (Part 3)
- Line 33. How do you calculate the cost of your inventory? “Cost” is the price for which you have bought it. “Lower of cost on market” is the minimal price you could buy it for at the moment of filling. Choose one method, and use it for all the calculations in this section.
- Line 35. Don’t try to put all the explanation there if your inventory has undergone a serious change between the end of 2019 and the beginning of 2020 (say, you decided to withdraw something or bought more right on the New Year). Include an explanation as an attachment.
- Line 42. It should be exactly the same value you put on Line 4, Section 1. The reminder is on both lines.
Parts 4 and 5, regarding your vehicle and your other expenses, are quite self-explanatory. What you need to care about is not to put anything that contradicts the lines above.
You may want to check whether you have done it correctly. Luckily, it’s available online, so you can download the Schedule C PDF version and fill it digitally or print it and fill it on paper. If some mistake occurs, just start over with a new copy. The easiest way to fill and file it is to fill out 1040 Schedule C online. You can sign it with your eSign and send it off in a matter of minutes. Well, it takes a little experience to do it correctly, so good instruction may still be helpful.
What to Check before Filing Schedule C Form 1040
While you are sure to remember your name and your address, there are also things necessary to fill in, though they are not the ones you use daily. They include:
- Your SSN (Social Security Number). It’s a nine-digit number issued to you. In fact, it’s your unique identification number for taxation.
- Your EIN (Employer Identification Number). You may have no EIN, but if you have, it’s also to be entered.
Along with these, there are documents to include to check whether your data is correct. These include:
- Your income statement for 2020;
- Your yearly balance sheet (take care to keep it throughout the year);
- Your mileage record. In 2020, the mileage rate for business is set by the IRS as 57.5 cents per mile; given this, you can calculate the exception;
- Statements and receipts that confirm your purchases for business;
- Inventory count and valuation (in case you sell something).
If Your Business Is Not Your Only Income Source
While Form 1040 is the core form to fill for any taxable income, it comes with schedules that concern specific types of income (salary, dividends, supplemental incomes, etc.) Schedule 1040 would be the one to fill if you were conducting any business activity in 2020.
So, if you have been working along with your business, or received some income from supplemental activity, or have won a lottery, you need to fill the schedules required for these sources, along with Schedule C. Don’t forget to put it on Part 1, Line 6 of your Schedule C Form 1040.
Now You C It
Hope this instruction will help you through the process of filling in your Schedule C Form 1040. If you find it useful for your friends or fellows, you can share it on your Facebook or Twitter. Feel free to leave a comment if you have something to add or a question to ask.