Returning Counselor Training:

Self-Employment�and Schedule C

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SOUTHERN NEVADA TAX ASSISTANCE

TY 2024

Self-Employment

• With the rise of the gig economy, we are seeing more and more taxpayers who the IRS considers to be self-employed.
• Self-employed persons are expected to pay taxes on their net business income (profit), but don’t generally have access to payroll software/services to help them do this.
• In these cases, the taxpayer will use Form 1040 Schedule C to report their business income and related expenses.
• Note: if a self-employed taxpayer is reporting a loss, it is out of scope for VITA/TCE. Taxpayers in this situation need to be referred to a paid preparer.

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Pub 4012 Tab D-21

Schedule C Overview

• Form 1040 Schedule C is made up of:
• Business information section (name, address, tax ID number, etc)
• Part I – Income
• Part II – Expenses (expense categories applicable to most businesses)
• Part III – Cost of Goods Sold (out of scope; mainly for businesses with inventory)
• Part IV – Vehicle Use Information
• Part V – Other Expenses (specific to the type of business, but not listed in Part II)
• If Parts IV or V are used, the expense totals feed back into Part II.
• Total Income in Part I – Total Expenses in Part II must be positive for the return to be in scope

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Supporting TaxSlayer Screens

• Pub 4012 Tab D-21 shows a portion of the TaxSlayer Income screen that includes relevant options for preparing a self-employed taxpayer’s return
• Business income options:
• Form 1099-NEC (Non-Employee Compensation)
• Form 1099-MISC (Miscellaneous Income)
• Form 1099-K (Payment card/third party transactions)
• Use the Schedule C/Profit or Loss from Business option to:
• Start a new Schedule C and enter general business information
• Specify expenses for the Schedule C business, including vehicle use

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Pub 4012 Tab D-21

Business Income Forms

• Form 1099-NEC
• Use to indicate compensation paid to contract employees
• See TaxSlayer screen on Pub 4012 Tab D-22
• We have to indicate the payer and the recipient, much like a W-2
• Beyond that, we just need to indicate the amount paid and Federal or state withholding, if any
• TaxSlayer will want to associate the 1099-NEC with a Schedule C or F (Farm Income)
• Choose the Schedule C option
• TaxSlayer will then let you associate the 1099-NEC with an existing Schedule C or with a new one that you create

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Pub 4012 Tab D-22 & D-23

Business Income Forms

• Form 1099-MISC
• Also has its own data entry screen in TaxSlayer
• We specify payer and recipient, as with the 1099-NEC
• But the 1099-MISC can be used to indicate different types of income:
• Rents
• Royalties
• Fishing boat proceeds
• Medical and health care payments
• And many others
• Also has boxes for indicating state or Federal withholding amounts
• TaxSlayer will ask you to associate the 1099-MISC with a Schedule C, Schedule E (Rents/Royalties), or Schedule F
• Choose the Schedule C option (others are out of scope)
• Select an existing Schedule C or create a new one

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Business Income Forms

• Form 1099-K
• Used for payment card and third party network transactions
• Previously only issued if gross payments were more than $20,000 and more than 200 transactions
• For 2024, a Form 1099-K must be filed if gross payments for goods and services exceed $5,000, regardless of the number of transactions;
• Slated to change to gross payments in excess of $2,500 for 2025 and $600 for 2026 (https://www.irs.gov/newsroom/form-1099-k-faqs)
• TaxSlayer has a data entry screen for the 1099-K, but it is principally there for state returns that require the information
• On the taxpayer’s Federal return, we only need to take the amount from Box 1a on 1099-K and add it to any other cash transactions the business had

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Pub 4012 Tab D-24 & D-25

Schedule C Screens

• The main Schedule C screen is shown on Pub 4012 Tab D-26; note the following options are out of scope:
• Cost of Goods Sold
• Depreciation
• Expenses for Business Use of Your Home
• Be sure to complete the Basic Information About Your Business and Questions About the Operations of your Business for each Schedule C
• Basic Information About Your Business: business name and EIN (if any), address (if different from taxpayer’s), NAICS business code (use link to view list), business description
• Questions About the Operation of Your Business: see screen on Pub 4012 Tab D-27; you will need to ask these questions of the taxpayer as they’re not on the intake form

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Pub 4012 Tab D-26 & D-27

Schedule C Income Screen

• Any amounts entered on associated Forms 1099-NEC or 1099-MISC will be added up and shown here
• Be sure to enter any cash sales and amounts from Form 1099-K in the first input box; can enter by line item and have TaxSlayer add them up
• Also inputs for:
• W-2 income as a statutory employee (statutory employees can take expenses against their income)
• Adjustments for returns/allowances
• Any other income (interest, dividends, etc.)

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Schedule C Expenses Screen

• The Schedule C Expenses screen is shown on Pub 4012 Tab D-28
• Includes general expense categories that are applicable to most businesses
• Can enter single totals or line item amounts that TaxSlayer adds up for you
• Note the following expense categories are out of scope:
• Contract Labor
• Depletion
• Employee Benefit Programs
• Mortgage Interest
• Pension and Profit Sharing

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Pub 4012 Tab D-28 & D-29

Schedule C Vehicle Expenses

• If the taxpayer uses a personal vehicle in the business, you’ll need to complete the Schedule C Car and Truck Expenses screen shown on Pub 4012 Tab D-30; data required:
• Vehicle description (ex: 2021 Toyota Highlander) and in-service date
• Miles driven for business, commuting, and other purposes (only business miles produce a deductible expense)
• Questions about availability of another vehicle, after-hours personal use of the vehicle, and documentation of business mileage (use of a mileage tracking app is considered written documentation)

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Pub 4012 Tab D-30 & D-31

Schedule C Vehicle Expenses

• Business miles are miles driven that produce revenue; all other miles are commuting or other/personal
• Ex: a rideshare driver drives 8 miles to pickup her first passenger who she drives 15 miles to his destination; she then drives 2 miles to pickup her second passenger who she drives 26 miles to his destination; then she drives 11 miles home. How many miles are business miles?
• See Pub 4012 Tab D-31 for a detailed discussion of what miles are/are not deductible for self-employed taxpayers

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Pub 4012 Tab D-30 & D-31

Schedule C Other Expenses

• The general expenses screen does not account for every type of expense a business may deduct
• Self-employed taxpayers are required to deduct all expenses which are ordinary, reasonable and customary for the line of business they’re in
• Use the TaxSlayer Other Expenses screen to enter expenses not covered by the general expenses screen; be sure to enter description and amount for each expense
• Use of personal cell phone and/or internet connection must be prorated according to percentage of business use

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Once Schedule C is Complete

• Once you complete a Schedule C, there are several ripple effects:
• The net income/profit is carried to Form 1040 Schedule 1 and then onto the 1040 itself where it’s added to the taxpayer’s gross income
• If the taxpayer has net self-employment income/profit in excess of $400, TaxSlayer will add Schedule SE to the return to calculate self-employment tax
• Self-employment tax is the employee’s and the employer’s contribution to Social Security and Medicare; in a W-2 context, we call these payroll taxes
• Since the employee and the employer are the same person, the employee gets to take 50% of the self-employment tax as an adjustment to income; TaxSlayer will handle this automatically

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Once Schedule C is Complete

• Once you complete a Schedule C (continued):
• Qualified Business Income Deduction (QBID)
• An additional deduction from income for self-employed persons
• Protects up to 20% of the taxpayer’s profit from income tax
• TaxSlayer will calculate this automatically

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Estimated Tax Payments

• Taxpayers with self-employment income are expected to make quarterly estimated tax payments throughout the year
• Not making estimated payments may result in underpayment penalties
• If the taxpayer had self-employment income in the prior year, ask if they were provided with estimated payment vouchers and whether or not those payments were made
• Be sure to enter any Federal or state estimated tax payments via TaxSlayer’s Payments and Estimates screen (see Pub 4012 Tab H-9)
• You can customize the estimated payment vouchers TaxSlayer generates for the following tax year from the same screen

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Pub 4012 Tab H-9

Self-Employment: Review of Key Concepts

• Self-employed taxpayers report their business income and expenses on Form 1040 Schedule C
• Income sources: Forms 1099-NEC, 1099-MISC, 1099-K, cash receipts
• Expenses: must be reasonable and customary for line of business
• Use of personal vehicle for business is a deductible expense; do not include commuting in business miles calculation; only standard mileage rate is in scope ($0.67/mile for 2024)
• Net income/profit is added to taxpayer’s gross income; self-employment taxes are calculated on net income in excess of $400; Qualified Business Income Deduction also calculated
• Be sure to enter any estimated tax payments made by the self-employed taxpayer during the year; provide the taxpayer with payment vouchers if they are continuing their self-employment

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Questions?

• What questions do you have related to self-employment and Schedule C?

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• Try Samuel Adams Practice Return 7 in the TaxSlayer Practice lab
• Married couple; taxpayer has a W-2 and pension; spouse started driving for Uber during the tax year (1099-K and 1099-NEC provided; spouse formed an LLC for this purpose)

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