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What do I Need to Know to File Schedule C for 2012?

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Question: What do I Need to Know to File Schedule C for 2012?
Small business owners who are filing business taxes as a sole proprietorship or single-member LLC must file using Schedule C - Profit or Loss from Business. Learn about the changes to Schedule C for 2012, how to prepare and how and where to file.
Answer:

What is Schedule C?
Schedule C (PDF) is the business tax return used by sole proprietors and by single-member LLC's, which file business taxes as sole proprietors. Read more about how a sole proprietor pays business taxes.

What are the changes in Schedule C for 2012?

  • Merchant card reporting. Gross receipts received via payment card (credit and debit cards) and third party network payments are not separately reported on Schedule C.
  • Mileage rate. On line 9, use the standard IRS mileage rate for 2012 (55.5 cents a mile for business driving) to calculate business mileage deductions.

Who must file Schedule C?
If you operate your business as a sole proprietorship (that is, you have not designated a legal business entity like an LLC, corporation, or partnership), you must complete a Schedule C. If your operate your business as a single-member limited liability company, you also use Schedule C for your business income taxes.

Where do I get information for completing Schedule C?
Before you begin to work on your Schedule C, you will need to gather certain end-of-year business information. You will need:

  • A profit and loss statement (sometimes called an income statement) showing the entire year of 2012
  • A balance sheet for the year ending December 31, 2012
  • Statements about assets showing purchase of assets in 2012
  • Information on inventory to prepare a cost of goods sold calculation
  • Details on travel and car/truck expenses, meals and entertainment expenses, and home business expenses.
Read more about the details of information you will need to prepare Schedule C.

How do I complete Schedule C? In general, you will first complete the cost of goods sold section and calculate gross income. Then you will list allowable deductions. Deductions are subtracted from gross income to get a net income. Read this step-by-step process for completing Schedule C.

How do I file Schedule C?
The information on your net business income from line 31 of your Schedule C is added to your personal tax return on Line 12: Business Income or Loss. This income is included with all other income sources to determine your total adjusted gross income tax liability for 2012 taxes. Read more about including Schedule C on your personal tax return.

Can I file business taxes using Schedule C-EZ?
Smaller businesses may be able to use Schedule C-EZ. The IRS says: small businesses and statutory employees with expenses of $5,000 or less may be able to file Schedule C-EZ instead of Schedule C. Learn more about Schedule C-EZ and how to complete it.

Must I file a Schedule C for each business I own?
Yes, Schedule C is used to report the net income from one business. So if you have several small businesses that use Schedule C, you must complete this form for each business. Then, net income from totals all Schedule C's are added together on Line 12 of your personal tax return.

How do I complete Schedule C for a husband-wife partnership?
The husband-wife partnership is a special case. Partnerships must use Form 1065 to report partnership income, but in certain circumstances a husband-wife partnership may become a qualified joint venture and file taxes using two Schedule C forms (one for each spouse). Check with your tax advisor before attempting to file as a qualified joint venture. Read more about how to complete Schedule C forms for a husband-wife partnership.

How do I correct a mistake on Schedule C?
To correct an error in Schedule C, you will need to file a corrected Schedule C as part of an amended personal tax return, using form 1040x. Read more about how to file Form 1040x.

What about schedule SE for self-employment taxes?
The net income information on Schedule C is used to determine the amount of self-employment tax you owe (for Social Security/Medicare taxes); Schedule SE is used to calculate the self-employment tax amount.

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