- This section of the form is fairly straightforward. Record your gross sales, which means every single dollar or penny you took in during the tax year under the auspices of your business. This forms the foundation on which your taxes will be calculated. Luckily, you get to start subtracting from it before the bill is final. In this section, you subtract from gross sales any items that were returned to you for credit, as well as cost of goods. The remaining number is called gross profit.
- To sell anything in your business, you have to buy it first. This is your cost of goods and is an expense that should be deducted from gross income. To assign a dollar value to your cost of goods requires a year-end inventory of all stock on hand. The cost of goods section also provides a space to credit back any items withdrawn for personal use, as well as labor costs paid not, including your own salary.
- Most of your new business start-up expenses should be itemized and recorded in the "expenses" section. The list of costs that can go here is lengthy but don't overlook anything. Consider expenses related to remodeling and interior decorating, buying fixtures and equipment, hiring employees, license and permits, website design, research and development, advertising and more. If it was an expense incurred related in any way to your business, it is likely a valid deduction. Smaller costs can be written off in their entirety in the first year, but larger purchases might have to be depreciated over time. This is the point where you should seek the counseling of a good tax professional.
- In the eyes of the IRS, the Schedule C form is for unincorporated sole proprietors, so any profit you show will be taxed at the individual rate of the applicable bracket for your income. Obviously, the lower the profit shown, the less you pay. For this reason, it's vitally important to account for all start-up expenses to minimize your tax bill.
Income
Cost of Goods
Expenses
Profit or Loss
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