Schedule C is the part of an individual tax return where self-employed individuals also known as sole proprietorships report income and expenses from self-employment. Most self-employed individuals who report their earnings on Schedule C have a doing business as (DBA) name, but the business usually still just uses their social security number. Basically, the business is an extension of them-self. However, once you have employees and have to pay payroll taxes a federal employer identification number is required. Once small businesses have more than a couple employees they generally should form a separate business entity for increased liability protection (e.g. general partnership, S corporation, or limited liability company). Anyways, back to Schedule C.
Self-employed individuals must report their gross income from self-employment for the applicable year on Schedule C. The question, “do I have to report it if they didn’t send me a 1099-MISC?,” immediately comes to my mind because the question gets asked a shocking number of times, but the answer is yes. A self-employed individual must report all income they receive in relation to their business regardless of whether they were sent a 1099-MISC for it. Another common question asked by self-employed individuals is what can they actually deduct in relation to their business. To answer this question broadly, really almost anything related to the business, but they are of course limitations and precautions to take note of.
Meals and entertainment can be written off, but they are limited to being 50% deductible or 80% deductible for department of transportation individuals and must be business-related. There is a significant amount of abuse in this area and the IRS knows it so people need to be careful, which meals and entertainment they are writing off. Another major category is auto expenses. An individual can deduct actual auto expenses or take a standard mileage deduction, which was .565 cents per mile in 2013. However, a detailed mileage log should be kept for both, and the business use percentage must be applied if the actual method is taken. Also, once the method is chosen for the first year it must stay the same method in subsequent years. Other deductible expenses include: supplies, business office rent and utilities, advertising, dues and subscriptions, continuing education, and licenses and permits.