Whether you’re a small business owner or a private contractor, if you’ve made profits or losses in the 2012 tax year, you’ll need to make sure to file a Schedule C form with the IRS.
If you’re not sure if you need to file one of these, or need Schedule C instructions, then this is good starting point for you. Keep in mind that a job or hobby you do every so often does not qualify as a business, and that income will need to be reported on a 1040 or 1040NR form for 2012.
Before you start reading through the Schedule C instructions, it’s important to note that if you business had expenses that were less than $5,000 for 2012, you do not need to file a Schedule C, but a Schedule C-EZ form. Additionally, local and state taxes will still apply to your business, and they should be considered separate from your filing of the Schedule C form.
To start filing the Schedule C form, you’ll need the name and address of the business, the employer ID number, or the social security number of the business owner. Additionally, you’ll need all information on your business income, including money you made for selling products, returns, allowances, consulting profits, and any other sources of income such as tax credits and refunds on purchases.
The hardest part of the Schedule C form is the cost of goods sold, which can take several hours. You’ll need to start with the value of your beginning inventory, while incorporating goods that you’ve produced and purchased, and then subtract what you sold or threw away to come up with your ending inventory for the year. You may need help from a financial advisor to make sure that this number is calculated correctly.
You’ll also need to make sure that you have all of your business expenses in order. Basically, every dime that you spent should be accounted for, since it will ultimately affect the taxes you pay. Make sure to include marketing dollars spent, employee benefits, insurance costs, vehicle expenses, and even interest that you’re paying on building mortgages.
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