Checklist for IRS Schedule C: Profit or Loss From Business – 2016

Before signing your tax forms and sending them to the IRS, use this checklist to spot potential errors on IRS Form Schedule C Profit or Loss From Business.

[]  If you have an EIN, enter this number at the top of the form, rather than your Social Security number. Do the same on your IRS Form Schedule SE Self-Employment Tax.

[]  Line 1: Put your parent payments and subsidy payments here.

[]  Line 4: You don’t have any cost of goods sold, so don’t enter any amount here.

[]  Line 6: Enter your Food Program reimbursements here. Don’t include any reimbursements you got for your own children. If you want, you can include Food Program reimbursements on line 1.

[]  Line 9: Enter your car expenses here, either using the standard mileage method or the actual expenses method. If you made car payments in 2016, enter the business portion of your car loan interest here, even if you used the standard mileage rate.

[]  Line 13: If you bought something for more than $2,500 and are depreciating it on IRS Form 4562 Depreciation, the amount from that form gets transferred onto this line.

[] Line 16b: Claim the business portion of credit card interest for business purchases.

[]  Line 24b: Do not enter the cost of any food served to your daycare children on this line. Instead, claim food deduction on line 27a.

[] Line 25: Don’t enter your house utilities here. Enter them on Form 8829.

[]  Line 26: If you hired someone to care for the children in your care, even if only for a day, did you file the proper payroll forms for this person? Almost anyone you pay to work in your business is an employee. If you enter any amount on line 26, the IRS will probably check to see if you filed the proper payroll tax forms.

[] Line 27a: Use the blank lines on the back of the form to enter any expenses that don’t fit on the front of the form. You can create your own expense categories. In my books and on the KidKare software I’ve identified five additional categories: Food, Toys, Cleaning Supplies, Activity Expenses and Household Items. See my article, “Where Does It Go? A List of Expense Categories.”

If you bought something that cost more than $200 and less than $2,500 you don’t have to depreciate it. Instead, enter it here and label it “Equipment” or “Household items” or something else. Attach a statement to your tax return electing the “$2,500 rule.”  See my article, “Where Do I Report Expenses Below $2,500 on My Tax Return?”

[] Line 30: Warning! When entering a number on this line you can choose between transferring the expenses from your IRS Form 8829 Expenses for Business Use of Your Home or claiming house expenses using the Simplified Method (Safe Harbor Rule). The Instructions to Schedule C tell you how to calculate your house expenses using the Simplified Method. Because of the Daycare Facility Worksheet on page C-11 of the instructions, it is extremely unlikely that you will be better off using the Simplified Method. Therefore, ignore this method and be sure your expenses from Form 8829 show up on this line. See my article for more about this.

[]  Line 31: Enter your profit or loss from this line onto your IRS Form 1040. Do you have a loss? It’s okay to show a loss once or twice every five years, but if it’s more often than this, you may attract the attention of the IRS.

Note: I did not identify every line you would enter your expenses on Schedule C.

[]  After filling out this form, check to see if any one expense line is significantly larger than the others. With the exception of your food expenses, you don’t want to lump a lot of expenses into one category (such as Supplies). Use the blank lines on the back of the form to break out some of your expenses.

[] Enter the following expenses for your home on Form 8829 Expenses for Business Use of Your Home: mortgage interest, property tax, utilities, house repairs, rent, house insurance and house depreciation. This can be confusing because there are lines on Schedule C that seem to tell you to put these amounts on this form (line 15, 16a, 20, 21, 23 and 25). The only time you would put your house expenses directly onto Schedule C is if you do child care in a home you don’t live in.

Note: A common mistake made on this form is claiming 100% of the cost of items that are used for both business and personal use. It’s common to have some supplies, repairs, office expenses, etc. that are 100% business and some that are shared business and personal. Be sure you don’t claim 100% of an item unless it is exclusively used for your business. If you use a tax preparer you need to know where each line on this form comes from. See my article: “Do You Know What’s On Your Tax Return?”

See also:

Checklist for IRS Form 8829 Expenses for Business Use of Your Home – 2016

Checklist for IRS Form 4562 Depreciation – 2016

Tom Copeland – www.tomcopelandblog.com

Image credit: www.irs.gov

For more information, see my 2016 Family Child Care Tax Workbook and Organizer.



Categories: Record Keeping & Taxes, Tax Return

1 reply

  1. Thank you Mr Copeland for the breakdown on the schedule c form very clear and concise instructions.