Even if your self-employment income isn't very much, you still have to report it to the Internal Revenue Service.In this tax tip:New role, new tax choresTake heed of the titleDon't trade ease for savingsBut depending upon your earnings and expenses, you may be able to file a much simpler form.New role, new tax choresWhen you own an unincorporated small business by yourself, the IRS considers you a sole proprietor. This means you have some extra tax-filing work to do.Your business earnings (or losses) are included as part of your individual income tax filing. To determine just how much to report on your 1040 (and you must use the long form), you itemize your operational income and expenses on either Schedule C or Schedule C-EZ.As the name indicates, the C-EZ is a streamlined version of the more-detailed Schedule C. So when can -- and should -- you use one form over the other?Take heed of the titleGuidance comes from the form names. Schedule C is titled Profit or Loss from Business. The EZ is Net Profit from Business. If you report a business loss, you can't use the short form.The IRS also requires a Form C-EZ filer to operate only one business. If you run two or more sole proprietorships, you must file a Schedule C for each.Schedule C-EZ also is acceptable if you:Have business expenses of $5,000 or less.Use the cash method of accounting.Do not have inventory at any time during the year.Never hire an employee.Do not depreciate any business property.Do not claim expenses for business use of your home.Do not carry over passive activity losses from an earlier tax year.Don't trade ease for savings. If you meet all of these requirements, then filing the simpler Schedule C-EZ probably will make your business tax life much easier.And don't opt for simplicity just to cut down on your tax-filing duties. If your home office is indispensable to your firm's operation, claim the deduction and use Schedule C. What it costs you in time to complete the longer form could more than repay you in tax savings.The IRS won't penalize you for taking every legitimate business deduction you can. Don't penalize yourself by using the wrong form. advertisementRelated Links:Sales tax holidays offer shopping bargains2009 tax holiday scheduleWhen a HELOC is used for a businessRelated Articles:Deduct COBRA paymentsTax fears worry saverHousing credit tax cheats
Even if your self-employment income isn't very much, you still have to report it to the Internal Revenue Service.
Your business earnings (or losses) are included as part of your individual income tax filing. To determine just how much to report on your 1040 (and you must use the long form), you itemize your operational income and expenses on either Schedule C or Schedule C-EZ.
As the name indicates, the C-EZ is a streamlined version of the more-detailed Schedule C. So when can -- and should -- you use one form over the other?
The IRS also requires a Form C-EZ filer to operate only one business. If you run two or more sole proprietorships, you must file a Schedule C for each.
Don't trade ease for savings. If you meet all of these requirements, then filing the simpler Schedule C-EZ probably will make your business tax life much easier.
And don't opt for simplicity just to cut down on your tax-filing duties. If your home office is indispensable to your firm's operation, claim the deduction and use Schedule C. What it costs you in time to complete the longer form could more than repay you in tax savings.
The IRS won't penalize you for taking every legitimate business deduction you can. Don't penalize yourself by using the wrong form.