First Year of Business - Questions about Schedule C (Form 1040)

[CS2023]

I started a private practice in 2023 in which I am the only employee. I am seeking some advice as I compile information for Schedule C (i.e. Form 1040) for my 2023 federal tax return. Any and all assistance is greatly appreciated!

1. Schedule C, Part II, Line 30 indicates home business expenses can calculated using a simplified method or detailed using Form 8829. Given this is my first year of business, do I have to use a specific method for expenses? Also, must I choose the same expense method in future years or can the method vary year-to-year? Finally, does claiming the standard deduction on my personal taxes impact which home business expense method I must use? 

2. Can I deduct TurboTax fees from Schedule C?

3. Can I deduct my LLC formation fees and state license fees (incurred December 2022) and my LLC renewal fees and state license fees (incurred December 2023) from Schedule C?

4. Can I deduct contributions I made throughout the year to my state's Family and Medical Leave program from Schedule C?

[JohnB5677 · Accepted solution]

You have several questions to address. 

The simplified method or detailed using Form 8829 are specifically for the home office.

• The simplified method allows a standard deduction of $5 per square foot of home used for business, with a maximum of 300 square feet.
• On form 8829 you will calculate the use of your home with a percentage of rent, mortgage, utilities and perhaps other home expenses.

Given this is my first year of business, do I have to use a specific method for expenses? 

No, you may elect either

Must I choose the same expense method in future years or can the method vary year-to-year? 

No, You may elect to use either the simplified method or the standard method for any taxable year. However, once you have elected a method for a taxable year, you cannot later change to the other method for that same year.

Does claiming the standard deduction on my personal taxes impact which home business expense method I must use?

No, The Schedule C election of either method is separate from Your personal tax return. 

Can I deduct TurboTax fees from Schedule C? 

Yes, but you will have to split the cost between the Schedule C and Your personal return. This can be a 50/50 split

Can I deduct my LLC formation fees and state license fees (incurred December 2022) and my LLC renewal fees and state license fees (incurred December 2023) from Schedule C?

Yes,  This and other setup fees are deductible to the business.

Can I deduct contributions I made throughout the year to my state's Family and Medical Leave program from Schedule C?

"Internal Revenue Code Section 45S provides a tax credit for employers who provide paid family and medical leave to their employees. Eligible employers may claim the credit, which is equal to a percentage of wages they pay to qualifying employees while they're on family and medical leave. The credit is effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026. For more information."  Please see:  Section 45S Employer Credit for Paid Family and Medical Leave

[CS2023]

The instructions for Form 8829 (business use of home expenses) state that taxpayers claiming the standard deduction should not fill out Lines 9-11 (Casualty Loss, Mortgage Interest, Real Estate Taxes). Because I claim the standard deduction on my personal tax return, this seems to apply to me. Can you please confirm? When no expenses are entered in Lines 9-11, Line 27 (allowable operating expenses) results in a $0 calculation.

[AmyC]

Pub 587 states:

Taxpayers claiming the standard deduction. If you claim the standard deduction, you will not include any mortgage interest, or real estate taxes on lines 6 and 7; instead, you will claim the entire business use of the home portion of those expenses using lines 14 and 15.

Go back and make entries for lines 14 and 15 to get line 27 to calculate a deduction for you. You can also use the simplified method instead which gives you $5 per square foot of office space up to 300 sq ft.

[CS2023]

Thank you, Amy. To clarify, can you confirm that the "standard deduction" in your quote from Pub. 587 refers to the simplified method for home business expenses? Want to ensure that it is completely separate from the standard deduction used for personal income.

[DianeW777]

Yes, the simplified method for the home office deduction is completely separate from the standard deduction.  

What @AmyC is explaining is that if you use the actual expenses instead of the simplified method the IRS guidelines explain in the publication is that you do not enter any mortgage interest or real estate taxes on lines 6 and 7, enter them only on lines 14 and 15.  

@CS2023 

[GerryLP]

I filled all deductions i am allowed for home office deductions, and others plus itemized the usual deductible stuff; when I was done, TT recommended using the itemized option (at a total of +111.00 for federal and state refunds). However, I like not having to worry about being taxed for state refunds for 2024.

Does opting for the standard deduction negates me any of the deductions for home office or other itemized items (medical, health plan, etc)???

[LeticiaF1]

If you deduct the home office as a business expense, then the percentage that is used for business will be deducted on Schedule C, and the rest will go to Schedule A as an itemized deduction.   Even if TurboTax assigned some of your home office expenses as an itemized deduction, there is a chance that they might not exceed your standard deduction amount, if they do exceed it,  you can choose to use the standard deduction.  

If you select the standard deduction, you will still claim the home office business expense as a business deduction. 

@GerryLP 

[GerryLP]

Thank you very much; First year of having and reporting a business in our taxes. I appreciate the help. 

Gerrty