A detailed explanation of sole proprietorship schedule C income taxes.
See links to jump to relevant points in the video below
1:10 Tax Forms & Line Items Involved
13:09 Schedule C Data Entry
30:18 Are You Self-Employed?
44:53 Business Owned and Operated by Spouses
50:26 What’s New for 2018
1:05:41 Self-Employment (SE) Tax
1:20:22 Which Forms Must I File?
1:27:31 Employment Taxes
1:35:43 Accounting Periods and Methods Introduction
1:44:09 Cash Method
2:00:45 Accrual Method
2:20:49 Combination Method
2:24:16 Accounting for Your Income
2:32:10 How to Figure Cost of Good Sold Introduction
2:36:13 Figuring Cost of Good Sold on Schedule C
2:44:30 Business Expenses Introduction
2:51:46 Car and Truck Expenses
3:06:43 Example – Cart and Truck Expenses
3:20:01 Depreciation Deduction
3:38:09 Example – Depreciation Deduction
3:50:44 Employees’ Pay Deduction
4:00:54 Example – Employees Pay Deduction
4:10:50 Insurance Deduction
4:20:59 Example – Insurance Deduction
4:29:59 Interest Deduction
4:36:49 Legal and Professional Fees Deduction
4:40:32 Pension Plans
4:52:40 Rent Expense Deduction
5:03:04 Taxes Deduction
5:18:45 Travel and Meals
5:24:36 Business Use of Your Home
5:40:36 Example – Business Use of Your Home
What Can I Deduct?
To be deductible, a business expense must be both ordinary and necessary. An ordinary ex-pense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or busi-ness. An expense does not have to be indis-pensable to be considered necessary.
Even though an expense may be ordinary and necessary, you may not be allowed to de-duct the expense in the year you paid orincurred it. In some cases, you may not be al-lowed to deduct the expense at all. Therefore, it is important to distinguish usual business ex-penses from expenses that include the follow-ing.
The expenses used to figure cost of goods sold.
Cost of Goods Sold
If your business manufactures products or pur-chases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your business expenses may be included in figuring cost of goods sold. Cost of goods sold is deducted from your gross re-ceipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.
The following are types of expenses that go into figuring cost of goods sold.
The cost of products or raw materials, in-cluding freight.
Direct labor (including contributions to pen-sion or annuity plans) for workers who pro-duce the products.
Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repack-aging, handling, and administrative costs.
This rule does not apply to small business taxpayers. You qualify as a small business tax-payer if you (a) have average annual gross re-ceipts of $25 million or less for the 3 prior tax years, and (b) are not a tax shelter (as defined in section 448(d)(3)). If your business has not been in existence for all of the 3-tax-year period used in figuring average gross receipts, base your average on the period it has existed, and if your business has a predecessor entity, include the gross receipts of the predecessor entity from the 3-tax-year period when figuring aver-age gross receipts. If your business (or prede-cessor entity) had short taxable years for any of the 3-tax-year period, annualize your business’ gross receipts for the short tax years that are part of the 3-tax-year period. See Pub. 538 for more information.
For more information, see the following sources.
Cost of goods sold—chapter 6 of Pub. 334.
Uniform capitalization rules—Pub. 538 and section 263A and the related regulations.
You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called “capital expen-ses.” Capital expenses are considered assets in your business. In general, you capitalize
three types of costs.
• Business start-up costs (see Tip below).
• Business assets.
You can elect to deduct or amortize
certain business start-up costs. See
chapters 7 and 8.
Cost recovery. Although you generally cannot
take a current deduction for a capital expense,
you may be able to recover the amount you
spend through depreciation, amortization, or
depletion. These recovery methods allow you to
deduct part of your cost each year. In this way,
you are able to recover your capital expense.
See Amortization (chapter 8) and Depletion
(chapter 9) in this publication