Checklist for IRS Schedule C: Profit or Loss From Business
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.
When entering expenses onto Schedule C it doesn't matter which line you put your expenses on. That's because all the expense lines get added together at the bottom of the form. There is no penalty for putting an expense on one line instead of another.
[] B: Enter your business code as a family child care provider: 624410.
[] D: 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: I recommend that you 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 for the year, enter the business portion of your car loan interest here, even if you used the standard mileage rate.
[] Line 11: Enter here amounts paid to independent contractors such as a cleaning person, gardener, someone who mowed your lawn or someone who did an activity for your program (swimming lesson, dance, etc.). Do no enter amounts here that you paid to someone who helped you care for children, even if the amounts were less than $600. Such helpers are your employees and wages paid should be entered on line 26.
[] Line 13: If you bought something for more than $2,500 and are using the 100% bonus rule, enter on IRS Form 4562 Depreciation, line 14. Then transfer any amounts from line 22 onto Schedule C, line 13.
[] Line 15: If you purchased business liability insurance, enter it here. Do not put house insurance on this line unless you do child care away from your home. It belongs on Form 8829, line 18b.
[] Line 16b: Claim the business portion of credit card interest for business purchases. Do not put mortgage interest on line 16a unless you do child care away from your home.
[] Line 17: You can only deduct the cost of tax preparer fees to prepare your business tax forms (Schedule C, Form 8829, Form 1040SE, Form 4562), not to prepare your Form 1040 and accompanying Schedules. Ask your tax preparer to split his fee.
[] Line 18: You can enter a variety of office expenses here including a computer, printer, paper, computer ink, etc.
[] Line 21: Enter expenses her for repairs on property you brought into your home (furniture, appliances, etc.) not for repairs on your home which belong on Form 8829, line 20.
[] Line 22: There is a temptation to identify many of your expenses as Supplies because they don't easily fit under the other expense categories on Schedule C. One way you could get audited is if the vast majority of your expenses are put on one line on Schedule C. If your Supply expenses are one hundred times larger than the next highest expense line, move some of your Supply expenses to another line.
[]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 21b.
[] 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 line26, 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.
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.”
[]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.
[]Line 31: Enter your profit or loss from this line onto your Form 1040, Schedule 1, line 12. 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 anyone expense line is significantly larger than the others. With theexception of your food expenses, you don’t want to lump a lot ofexpenses into one category (such as Supplies). Use the blank lines onthe 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.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.hrblock.com/tax-center/irs/forms/what-is-a-schedule-c-tax-form/
For a list of over 1,000 allowable business deductions, see my book Family Child Care Record Keeping Guide.
