Business Expenses vs. The Standard Deduction

[JS3909]

I am filing the required Schedule C-EZ form for my very small business, plus I believe I must also include a mandatory 1040 form. My question is that  "I don't have that great amount of business expenses" so is there any way for a small business to take the Standard deduction? ..or is it only actual Business expenses allowed?

[Critter]

Ok ... there is no such thing as "Business Expenses vs. The Standard Deduction" on a tax return ...  on the Sch C you are required to report ALL income and expenses for any self employment on the Sch C period.  There is no wiggle room on this point no matter the size of the business. 

Then after you have completed the income section of the form 1040  you can choose to take the standard or itemized deduction ... this has nothing to do with what happens on the aforementioned Sch C. 

[VolvoGirl]

The Standard Deduction is only on the 1040 against all your income.  There is no Standard Deduction Deduction on Schedule C for business except for vehicle mileage. 

So you get both the Standard Deduction and your actual business expenses on schedule C.

Schedule C & C-EZ is part of your personal 1040 return.  You don't file it separately.   What year are you doing?  Is this your first year filing schedule C?

[JS3909]

I am filing a Late 2016 return.  also I am very new to this ..so be advised, my understanding is just hanging on! What I am really trying to find out is, are the business expenses shown on the Sch. C-EZ form, all I have that will bring down the final tax I will owe? ..or do I still have an opportunity to lower the final tax amount, with the 1040 form through an additional standard deduction?

[VolvoGirl]

Yes you get both the Standard Deduction and schedule C on your 1040 return.  Just keep filling out your return.

You enter all your income which will include the Net Profit or Loss from Schedule C.  That gives you your AGI Adjusted Gross Income.

Then it subtracts the Standard Deduction or your personal Itemized Deductions from Schedule A whichever is more to give you the Taxable Income.

For 2016 the Standard Deduction is

Single 6,300 + 1,550 for 65 and over

HOH 9,300 + 1,550 for 65 and over

Joint 12,600 + 1,250 for each 65 and over

Married filing Separate 6,300 + 1,250 for 65 and over

Schedule A Itemized Deductions are things like Medical, Gifts to Charity, State Income Taxes Paid, Mortgage Interest, Property Taxes, Car Registration fees, etc.

[VolvoGirl]

Heres some info on self employment, sole proprietor and schedule C.  To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.

You need to report all your income even if you don't get a 1099Misc. You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  The SE tax is already included in your tax due or reduced your refund.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[JS3909]

Thank You very Much Volvo Girl, ..I'm going to give it another try, after reading all of this info! Jill

[VolvoGirl]

Let me ask you one thing.  Did you ever file a 2016 federal return for your personal income?  Like back in 2017 when it was due?  Why are you just now filling out schedule C?

[JS3909]

I have been very ill for several years and not earning any income, I was an artist and in that tax year I sold some older paintings, I sent in an extension but completely forgot about it! ..until I got a letter from them!

[JS3909]

Hello I am working on the 2nd page of the 1040 form, and have one question. On Line 40 it asks for itemized deductions or the standard deduction! ... Where do I enter the business expenses figured on the schedule C-EZ form? ...or do I have to make a decision between using them or the $6300.00 Standard deduction?

[tagteam]

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@JS3909 wrote:

Where do I enter the business expenses figured on the schedule C-EZ form? ...or do I have to make a decision between using them or the $6300.00 Standard deduction?

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For 2016, your net business income (or loss) is entered  on Line 12 of Form 1040; Line 40 (itemized or standard deduction) is completely separate and apart from the net profit/loss reported on Schedule C/C-EZ).

[VolvoGirl]

You only enter the business income & expenses on the schedule C or C-EZ.  Then the Net Profit or Loss from Schedule C automatically goes to 1040 line 12.  Only enter anything only 1 time and only in 1 place.  

1040 Line 40 is your personal Standard Deduction (I posted the amounts above) or your personal Itemized Deductions from Schedule A.  Completely different and separate from schedule C business.

Here is 2016 Schedule C-EZ

https://www.irs.gov/pub/irs-prior/f1040sce--2016.pdf 

Here is 2016 full Schedule C

https://www.irs.gov/pub/irs-prior/f1040sc--2016.pdf

And Schedule A

https://www.irs.gov/pub/irs-prior/f1040sa--2016.pdf 

[JS3909]

Thank You ...Just want to confirm! ...Self employment tax for 2016 was figured by 15.3 percent of your Net income, which is your total income before any expenses I believe!  ..So if you made, $9700.00 ..the SE tax you would owe is $1484.10  ...is that correct?  

[tagteam]

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@JS3909 wrote:

So if you made, $9700.00 ..the SE tax you would owe is $1484.10  ...is that correct?  

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Not exactly because there are adjustments if you pay the entire 15.3% as a result of being self-employed. Try the calculator at the link below.

https://www.calcxml.com/calculators/self-employment-tax-calculator

[VolvoGirl]

No.  Net Income is AFTER expenses on schedule C.  The SE tax is on your Net Profit of $400 or more.  

See Schedule C,  https://www.irs.gov/pub/irs-pdf/f1040sc.pdf 

And Schedule SE for tax https://www.irs.gov/pub/irs-pdf/f1040sse.pdf