Instructions for Form 1040 Schedule C

An income tax return, is a disclosure to the Internal Revenue Service (IRS) about the economic and income generating activities that we undertook in the past financial year. The primary and also the most important Form for income tax returns is Form 1040. This Form is divided into several different 'schedule', with, Schedule A, Schedule B, Schedule C and Schedule D being the most prominent ones. Each of these schedule address to different elements of the income. The Schedule C of Form 1040, is the schedule which is used to fill up the information about income that is derived from profit and loss of a business. The Form 1040 Schedule C instructions have been discussed in the following paragraphs. Let's have a look...

Who Should File a Form 1040, Schedule C?

A Form 1040 Schedule C should be filed by any person who is connoted to be sole proprietor of a business or has a profession. The filled up Form 1040 Schedule C is to be attached to the Form 1040 series, along with a 1040NR or a Form 1041. People engaged in partnerships are not connoted to be sole proprietors and hence they need to file a Form 1065 and Form 1065-B, the one which is suitable. Let's take a look at how this Form is filled.

Instructions for Form 1040 Schedule C

Form 1040, Schedule C is divided into 5 different parts, each giving the details about the income of the business. Here is how one can go about it.

Introductory Part
The actual Form begins with an 8 lines of introductory part, which are named alphabetically. Before the Line A, you need to fill in the name of the proprietor that is, of course, your name. Apart from that you will also have to fill in your Social Security Number in this line.

• Line A of the Form consists of the description of the profession along with the product and services rendered.
• Line B is where you include codes from pages C-9, 10, 11 of the Form.
• Line C is for your business name or enterprises title.
• You need to address Line D, if you are employed or your profession or business is connoted to be an employment, then you will also have to include, the Employer Identification Number (EIN).
• Line E includes postal address of the business.
• Line F is rather, important one and you will have to check the box of the accounting technique that you follow. This may include, cash, accrual or others.
• Line G asks whether you participated in the business materially or not.
• Line H asks, if you have acquired the business in the current fiscal year or not.

Now, from here onwards the tougher part of completing the return starts. Hence, keep all your books of accounts and statements handy.

Part 1
Part 1 is divided into 7 lines. In the line 1 you will have to state your computed gross income, sales or receipts for the year. If you are under the employment, then you will have to take into consideration the Form W-2 figures as well. For joint venture members, several exemptions, limits and losses are imposed. Line 2 Form the total of all the returns and allowances that have been used in the due course of business. These need to be subtracted from line 1 total in line 2. On line 4, you need to depict the cost of goods that have been sold. Line 5 consists of the gross profit of the business. Line 6 consists of all other incomes such as credits and exemptions or quasi-incomes which are not exactly incomes but take the role of incomes. The gross income is reported on line 7.

Part 2
The second part of the Schedule C, depicts all types of expenses incurred in the working of the business. These include everything from employee welfare and benefits to advertising expenses. Line 8 to 17 are used in the process. Next, the total expenses are computed on line 28 following which, tentative profit or loss is computed on line 29. Line 30 is a bit confusing one. There are some personal or household expenses which you may need to include in the expenses of the business. This information has to be included in Form 8829. Line 31 consists of the Net profit of the business. You need to include these figures on Form 1040 Schedule SE and Form 1040NR. Line 32 is used to depict a loss, and volume of money that you have invested in the business. Apart from that you would need to fill the Form 6198, to depict the loss.

Part 3
The part 3 is used to report the total cost of goods sold. This part begins with line 33, where you will have to disclose the type of inventory valuation you used. This may include, cost, or lower of cost or market or other methods (as per directions of the IRS). In case of any changes in the costing and inventory valuation techniques, the changes need to be depicted on line 34. On line 35, you have to fill in the cost of inventory at the beginning of the year, which is also known as the opening stock. Line 36 consists of the purchase cost less withdrawals for personal use. The total cost of labor is to be depicted on line 37, while line 38 is used for the depiction of materials and supplies cost. Line 41 closes the inventory of the year and entire total is depicted on line 42.

Part 4
This part is for your vehicle's details. You will have to disclose whether you used vehicle to conduct business in the past year on line 43, which opens this schedule. In the next line you will need to depict the miles that were used for business, commutation and other purposes. In lines 45, 46 and 47, you will have to describe whether you or your spouse have used the vehicle and whether there is any evidence to claim any of the tax deductions. You will have to, of course, support it with a proof.'

Part 5
This art of the schedule is made available so that you have the facility to disclose expanses and claim deductions that have not been included in the Part 2 of the schedule. As always, authentic proof is required to claim the deduction. Line 48 concludes the schedule with the totals of all additions and subtraction.

This schedule of the Form is difficult to fill as there are several complications relating to proofs of expenses and exemptions that need to be claimed properly. If you have any difficulty filling information in the Form 1040 Schedule C, you will have to visit the IRS resources. Don't hesitate and don't hold back as any non-compliance or mistake (because of ignorance or oversight) has legal implications, that you would certainly not welcome.