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How to fill out a self-calculating Schedule C, Profit or Loss From Business



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hi this is John again with PDF tax we're

working with Schedule C today we're

going to try to give you a idea how this

form looks works this is the form that

you would use that you would attach to

your individual income tax return 1040

if you had a business and you were a

sole proprietor in other words you were

working you were the owner and you're

working by yourself you don't have any

partners and you didn't incorporate your

business in any way so you would fill

this form out and attach it to your

Schedule C is your form 1040 to show

your profit or loss for the year so

let's just start out by filling in some

basic information here just take me a

few minutes here to do this

and we're going to say that this that

Jeff Jones has a manufacturing business

where he creates leather handbags so

like that and his business name is

leather works like that now we need to

come up with a business code and to do

that we're going to go to the

instructions for Schedule C which has

the business code so if we go down here

and we look under leather and allied

products the code we want is three one

six nine nine oh so we'll go back up

here and enter three one six nine anal

like that whoops nine nine oh and the

business address is I don't know some

address

we don't need an employer ID necessarily

unless he applied for one you can just

use your social security number if you

don't have an employer ID now we need to

fight and we need to decide what the

accounting method is and we're going to

say that this business has inventory so

we'll need to use the accrual method

which is that right there and then

did you materially participate and what

other words did you spend your time

working in this business and Jeff

certainly did because that's his it's

his 100% business and that's what he

does full-time so we're gonna say yes

here did you start in 2:17 no did you

make payments that would require filing

to 1099 he probably did because he made

payments to a purchase inventory so

it'll say yes and did you file them and

we'll say yes again so that is the big

basic information right there now let's

go ahead and enter some numbers so we

can see how this form works and on line

one we need to put our sales so we'll

suppose that he had a 150 thousand

dollars in sales for the year and then

he didn't necessarily have any returns

he might have but we'll leave that blank

and cost of goods sold is the next big

thing that we need to look at so that's

that comes from line 42 so let's scroll

down here tie line 42

this section here where we have cost of

goods sold and first thing we need to do

is decide what method of inventory we

use for valuing and inventory and

probably he's going to use the cost

method which is the most

and was there any change in the cost in

valuing the inventory we'll say no there

was no change so the inventory that

began the year these would be the

leather that he uses to make his handbag

so let's say he had five thousand

dollars in inventory at the beginning

the air and then how much did he

purchase during the year to make the

handbags and so let's say there was

thirty thousand dollars there and the

cost of labour he has some employees

that were helping them so maybe he paid

them forty thousand dollars something

like that and then didn't have any of

these other costs so a total here is

seventy-five thousand but then he had

inventory at the end of the year of

let's say twelve thousand so his cost of

goods sold comes at sixty three thousand

like that and that is going to carry

back here to this line so his gross

income here works out to eighty seven

thousand dollars now let's talk about

his expenses in part two here you can

see there's about twenty lines there for

different types of expenses and so he

would enter you know whatever he has he

might have had ten thousand dollars in

advertising and I'm not going to spend

time on each item but I don't want to

take a look at depreciation let's let's

suppose that he bought a leather tanning

machine in this year for forty thousand

dollars and how does that affect this

Schedule C so in order to figure that

out we're gonna go down to this

depreciation schedule here we're where

you would enter to your depreciation and

there's several different options here

but maybe the best one is this line

fourteen special depreciation allowance

that allows you to write off 100% of the

cost of your whatever you bought if it

qualifies and if you bought it after

after September 27th 2017 you can get a

hundred percent depreciation allowance

so if he decides to do that he would

enter 40 thousand right there like that

and then the total would go down here to

line 22 and then back up here it comes

back as on line 13 is 40,000 so his

total expenses right now are 50 and his

profit is 37 which is the 87 - the 50 so

you can see that right there on line 31

that's the way that works right now well

let's um make a different assumption

about how he wants to handle the

depreciation so if he writes off the

whole thing this year obviously he's not

going to have anything to write off and

the next year or the next several years

and maybe he wants to do that he doesn't

want to take the full deduction

necessary wants to save some for in the

next few years so let's go back down to

the 4562 and we'll change what we're

doing here a little bit take that out of

there

and if he wants to just appreciate his

asset he would use this section here so

the asset that he has is a is a

seven-year property so he would put

40,000 right there and if he bought it

in the last quarter of 2017 he would be

using the mid-quarter convention like

that so he would be getting one thousand

four hundred twenty-eight dollars of

depreciation this year which isn't very

much but then he'd have a lot left over

for the next several years so on line 22

at 14 28 and again that is going to

carry back to line 13 so now his

profit is a lot more 75 572 no I just

has one question here left to deal with

is all this investment at risk and I was

did he make any loans that he wasn't

responsible for and no I didn't do that

so his advancement it's all that risk

just like that so there's the bottom

line of what he would put on his 1040 a

profit of 75 572 so that completes our

discussion of Schedule C so thanks for

listening