Schedule C

[David Hanson]

Im only getting about 25% deduction of my schedule C expenses

[VolvoGirl · Accepted solution]

Please explain more and where.  Aren't the expenses reducing the Net Profit on Schedule C?  They don't directly reduce your income tax by the same amount. Maybe you are already getting back all you can and more deductions won't increase it. Some Deductions are limited. Or you still owe for something else. Also after you reduce your income to zero there is no more refund to get back but you still may owe for other things like self employment tax or the 10% early withdrawal penalty from 401k or IRA accounts.

[Critter-3]

Did you indicate that everything was "at risk" ?  

 To change the At Risk box 32 on Schedule C
Go to Business tab-Continue
Click on    I'll choose what I work on
Then…
Business Income and Expenses- Click the Start or Update button

You should see the Business Summary page that lists your businesses

Then click EDIT by the business name and the next screen should be a list of  topics, 
Business Profile, Income, Inventory/Cost of Goods Sold, Expenses, Assets, and Final Details last.

Scroll down to Final Details - Click Edit by Special Situations

Make sure the 6th box on the next screen is BLANK. It says...I have money invested in this business that I'm not at risk of losing.  And if you don't have any other boxes on that screen checked then click the last box for None of the above. -  Continue

Then you will be back on the Business Topic screen, if you are done then click Continue at bottom
Then you see thea Business Summary screen listing your business - Click Done

Then you will be back at the Business Info main screen and it should say Done with Business at the bottom.  Click Done with Business.

[David Hanson]

I did a test.  I put gross income at 100K. Then, I put 10K into box 38 Schedule C. I got 3,049.00 credit.  That means when I buy an appliance for a client, I'm going to be taxed on about 70% of the value. I don't get it.

[VolvoGirl]

Are you keeping an in inventory?  Don’t use line 38.  Use line 22 for supplies or line 27a for other expenses.   

For self employment income on a schedule C you have to enter the total gross income you received (including the product, parts or reimbursements) and then you enter all your expenses.  Reimbursements would be an expense.  Product and parts would probably be entered as Supplies.  Or you can use line 27a Other Expenses.  Then only the Net Profit (or Loss) on Schedule C goes to your 1040 and gets taxed.

[David Hanson]

I understand what Volvo girl is explaining. My question lies within the tax ratio.  For instance,  I buy a 2x4 for 5 dollars, I install it for my client.  I claim the 2x4 expense on schedule C line 27a. I get 1.25 credit.  Therefore, I'm only receiving a portion of materials I buy not for personal use, but am given a portion of the expenditure.

Can anyone help me understand this?

[VolvoGirl]

Well for each expense amount you enter you will save about 14% of self employment tax.   And reduce your taxable income and  regular income tax by your tax rate.   

You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400). 

[David Hanson]

Ok that means I should make my clients buy all the materials.  That way I will show less income. They re-imburse me for my expenses i.e. appliances, lighting fixtures etc. But it raises my gross income and I only get a percentage of credit.  That's crazy.  Am I correct?

[VolvoGirl]

What credit are you talking about?   It works out the same either way.  let’s say the job is $10,000 not including the materials.   

Either they buy materials so you report only the 10,000 income and you don’t claim the expenses for it.  So you report $10,000 of income and have a 10,000 Net Profit.   

Or you buy the materials say 5,000 and they pay you 15,000.   5,000 for materials and 10,000 for the job.   You have 15,000 of income and 5,000 material exp giving you the same $10,000 Net Profit.

This doesn’t account for your other regular self employment expenses.