NEED TAX HELP! About Schedule C, business expenses...?

Question

Hi! Ok, I am confused. Please help me with what expenses go in what catagories on the schedule C. Specifically, below:

1. "Office Expense" DOES THIS MEAN OFFICE SUPPIES LIKE COPIES, INK, PENCILS, ETC OR SPECIFICALLY OFFICE RENTAL??

2. "Supplies" OR WOULD THIS MEAN THE PENCILS, PAPER, INK ETC?

3. "Equipment" WOULD THAT BE APPLIANCES BOTH LARGE AND SMALL LIKE A WHEEL BARROW, CD PLAYER, STEREO, ELECTRIC PENCIL SHARPENER, FAX MACHINE, ETC.

4. "Wages" I ONLY USE INDEPENDENT CONTRACTORS, BUT I DO PAY THEM, WOULD THIS BE CONSIDERED WAGES OR CONTRACT LABOR?

5. "Contract Labor" WOULD THIS BE WAGES I PAY MY INDEPENDENT CONTRACTORS, OR PEOPLE THAT I WOULD PAY TO DO SHORT TIME JOBS? (I only pay them as well on an independent contractor basis)

It is important to know that I do not have any employees, just me, except my once inawhile independent contractors, which does fall under the legal definition of which.

Also, what is the diff between cash & accural method? THANK YOU!!!!

Answer 1

1. Rental, decorating, cleaning and maintenance not provided by the landlord.

2. Supplies consumed to run the business. Certainly paper, pencils, notebooks, and such.

3. I can't remember if this is where you take depreciation or if that's on another line. The things you listed would not be depreciated unless the fax or stereo was very fancy. If you work alone the stereo would be a personal item, unless you use it for demos or something.

4/5. You are paying contract labor, not wages, as long as the IRS agrees these are contractors and not employees. There are many tests and it's a subjective call.

Cash method is the normal way family accounting and individual income taxes are done. An expense occurs when you pay the bill. Income comes in when you receive payment, be it wages, consulting fees, merchandise sales, etc. Accrual method is the more sophisticated way of looking at income and expense, where you try to assign income and expenses when they happen, not when money changes hands. So a sale happens when you write an invoice; an expense happens when you get an invoice, not when you make payment. If you're a sole proprietor with no inventory, there's normally no advantage in the accrual system.

Answer 2

1.) Office expense would be considered pens, paper, etc. Do not include rent--there is a separate line for that. It is the necessary expenses to run the office. You may, however, depending on the dollar amount, show under other expenses ie telephone, postage since IRS looks at total dollars in a category if its excessive and might question it. The more detailed, the better.

2.) Supplies are those cost in running the business. Let's say you do janitorial work. You need broom, mops, dust rags, etc. to do your work.

3.) Equipment are the larger ticket items, like scrubbers, vacuum cleaners. Items, on the most part can be in existance for more than one year. In your example, if you do paperwork in your office and have a stereo system, you can deduct the stereo system only if it is useful to your business. For example, when you put a person on hold, the music you are listening to is on the telephone. or, if you are advertising on the radio, you want to listen for your ad.

4-5) Employees are those individuals that you withhold taxes for, pay unemployment taxes, provide benefits. You pay them a salary or by the hour and they submit a timesheet. Contractors, you do not withhold taxes (specifically-social security-and unless the IRS requires backup withholding for them). Contractors are paid by the job or hourly and they submit an invoice for payment.

Hope this helps. Good luck.

Answer 3

The previous two answers are good.

"Equipment" would be those items used in conducting your business. If you have a small item of equipment used in running your office, that is supplies.

"Office Expense" can include postage.

All payments made for labor that are not paid to employees is "Contract Labor."

How do you pay your business expenses and record your income? Do you record payments as received and record expenses when they are paid? Then you using a "cash" system of accounting. This system is easier to handle.

The "accrual" system means you recognize income when it is earned, not when the money is received, and you recognize expense when the activity which results in a payment due happens, not when you pay for the expense. So, unless you have an accountant handling your accounts, stick with a cash method.

There are several more types of expenses that will appear in your return. Even if you use a tax preparer, you need to learn about the categories of expenses so that you will keep good records. A good reference for you is the IRS Instructions to Schedule C.

http://www.irs.gov/pub/irs-pdf/i1040sc.pdf

Answer 4

No, it does not trigger an audit. A "business" with no deductions is actually very common, especially for independent contractors. However, if you have no expenses to deduct, then you may qualify to use Form C-EZ instead of Form C. If you have no deductions, then the tax is the same, but Form C-EZ takes less time.

Answer 5

1. "Office Expense" DOES THIS MEAN OFFICE SUPPIES LIKE COPIES, INK, PENCILS, ETC OR SPECIFICALLY OFFICE RENTAL??
It means the cost of the office, rental, etc., Depending on the kind of business, you can do utilities here or separately.

2. "Supplies" OR WOULD THIS MEAN THE PENCILS, PAPER, INK ETC?
Yes
3. "Equipment" WOULD THAT BE APPLIANCES BOTH LARGE AND SMALL LIKE A WHEEL BARROW, CD PLAYER, STEREO, ELECTRIC PENCIL SHARPENER, FAX MACHINE, ETC.
Equipment would normally be larger items, copy machines, fax, binding equipment. Pencil sharpeners would normally be office expenses and CD players would be questionable unless public background music is needed for your business

4. "Wages" I ONLY USE INDEPENDENT CONTRACTORS, BUT I DO PAY THEM, WOULD THIS BE CONSIDERED WAGES OR CONTRACT LABOR?
This is one of the trickiest areas of a business. If you get people and tell them what to do in detail and when to show up, then they are employees and you are responsible for the employers share of Social Security and withholding taxes. If they are really independent contractors (self employed) then they set when they work and what order the do the work. The IRS has really come down hard on this.
Wages are what you pay employees.
5. "Contract Labor" WOULD THIS BE WAGES I PAY MY INDEPENDENT CONTRACTORS, OR PEOPLE THAT I WOULD PAY TO DO SHORT TIME JOBS? (I only pay them as well on an independent contractor basis)
See above.
It is important to know that I do not have any employees, just me, except my once inawhile independent contractors, which does fall under the legal definition of which.
See above, be very careful.

Answer 6

You should really hire an accountant. You may save a little money doing it yourself, but don't be penny wise and dollar stupid. At least sit down and have a consultation, it would clear up any questions you have without paying. A solid accountant should be able to file a simple return at around $150.