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Chapter 1: Introduction to Schedule C and Self-Employment

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This lesson guides tax professionals through Schedule C filings, covering business income, deductions, and self-employment taxes. Build confidence in helping clients optimize their tax strategies. THE ENTIRE GUIDE FOR THIS MODULE IS PROVIDED AS AN ATTACHMENT WITH THIS CHAPTER.

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1. Maria runs a small graphic design business from her home. She files her taxes using Schedule C. She receives a payment for services rendered in December, but doesn’t deposit the check until January of the following year. If Maria uses the cash method of accounting, when should she report the income?
In the year the payment was received (December). In the year the payment was deposited (January). She doesn’t need to report the income since it was deposited in January. Maria can choose either year to report the income.
2. John is a freelance writer and uses Schedule C to report his income. He also has a part-time job and receives a W-2 for that income. How should John report his W-2 income and his self-employed income?
Report both on Schedule C. Report W-2 income on Schedule C and self-employment income on Form 1040. Report W-2 income on Form 1040 and self-employment income on Schedule C. Combine both incomes and report them on Schedule SE.
3. Sarah works as a yoga instructor and is considered self-employed. She has no formal office and teaches classes at various gyms. Can she still use Schedule C to report her income?
Yes, Schedule C is used by all self-employed individuals, regardless of office location. No, she must have a dedicated office to use Schedule C. Only if she provides classes in her own home. No, she must use Schedule SE instead.
4. Paul operates a web design business as a single-member LLC. Should he file his business income and expenses on Schedule C or another form?
He must file on Form 1120. He must file on Schedule C since his LLC is a disregarded entity. He files on Schedule K-1. He doesn’t need to file a tax return for his LLC.
5. Jane runs a small online boutique. She mistakenly thought she could deduct some personal expenses as business expenses and claimed them on Schedule C. What is likely to happen if the IRS audits her?
The IRS will adjust her return but won’t impose any penalties. The IRS will disallow the deductions and impose penalties for improper reporting.. She will need to file an amended return but won’t face penalties. She can claim them if she proves they were related to her business
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