1040 Schedule C-EZ calculates your net profit.

In order to understand what the Schedule C-EZ is, you need to understand the format of the related IRS Form 1040 Schedule C. Are you self-employed or a sole proprietor of a small business?  When you file your income tax return, you use the longer Schedule C to report your business income or loss on your personal (rather than corporate) income tax return.  Your net business profits, calculated on either schedule, are summarized on the top page of your IRS 1040, US Individual Income Tax Return.  You can also use either Schedule C to report wages or expenses you accumulate during a tax year if you are a statutory employee, are involved in qualified joint ventures, or have income that is reported on an IRS Form 1099-MISC, Miscellaneous Income.  You need to complete either Schedule C in order to calculate self-employment tax.

Why is Schedule C-EZ the “short form”?

Just like the 1040EZ “short form” for personal income tax, Schedule C-EZ is based on VERY simple business information. You provide information in Part I, such as name and principal business activity,  your gross and net profit in Part II, and information about any vehicle expenses you want to claim, in Part III.  There are eight separate questions in total; Schedule C has 48 separate questions.  Both schedules are fundamentally the same. They are financial statements of profit and loss (P&L) that provide current information about operating revenue and offsetting expenses.

Are there requirements for using the short Schedule C-EZ?

In order to use the Schedule C-EZ, your business or profession must:

• have a net profit running a business as a sole proprietor
• use the cash method of bookkeeping
• have no employees
• have neither inventory nor fixed assets
• have neither a home office deduction (IRS Form 8829) nor report depreciation (Form 4562)
• have business expenses less than $5,000

Are there disadvantages to using Schedule C-EZ?

Since both schedules help you calculate the net profit (or loss) for your business, there is no fundamental difference in the forms. However, part of successfully running your own business is to track all business expenses in order to determine how much it REALLY costs to run your business. The Schedule C might have more questions to answer but, if correct understood, helps you better identify how you spend money in the pursuit of profit. Categorizing and tracking your business-related expenses throughout the year might save you from misreading a business trend or wishful thinking.  Running a successful business in a competitive world requires strategic planning and concentration on more than just business goals; you need to account for every dollar spent in pursuit of profit. Schedule C-EZ might provide the general answer about pursuing profit but it won’t identify where your money goes on the way to achieving your business revenue.

There are few summer vacation locations that are open 24 hours a day, 7 days a week, and have free admission.  Looking for that special place to spend an hour or two and maybe save money?   Does your computer have a cable connection, ADSL, or dialup?   Consider bringing the entire family together with a bag of potato chips and a six-pack of Diet Coke and visit IRS.gov this summer.  This G-rated website, offering entertainment and useful information, will significantly impact your life, your spouse’s life, and the lives of your children and beneficiaries… and you don’t need IMAX or special 3D glasses!   Admittedly, the graphics are a bit low-key but all the topics are age-appropriate and can be view without fear of political incorrectness.  For example:

• New tax law changes?  This most recent Congress has kept you in their mind by enacting new laws that are guaranteed to affect your life both now and in the future… until they reconvene.
• Looking for spare change?  The IRS will show you exactly how much you need to withhold on your IRS W-4.  The Feds of course, don’t want you to withhold too little or too much income tax from your paycheck! Remember Goldilocks and the Three Bears?
• Want to commit your family estate to charities like the billionaires Bill Gates and Warren Buffet?  Join the club. You might however consider sending your spouse and other potential beneficiaries out to the kitchen for more soda while you search IRS Publication 78, Cumulative List of Organizations, for the perfect federal-tax exempt organization. The listings will offer information so that you can consider the size of your tax deductions for your charitable contributions! Just think how good promising to donate all your wealth to charity will make you feel?  What a rush!
• Looking for a job?  Charity does in fact begin at home.  Have you considered the government?  The IRS provides information about IRS careers for full-, part-time, and seasonal work.  Consider federal employee union membership and the health and retirement benefit plans!
• Need more information like tax forms and tax publications?  Looking for fascinating bathroom reading for the guest room?  You can download PDFs, view forms and even order tax stuff 24 hours a day.

Don’t be confused or distracted by substitutes; get the real poop at IRS.gov.  For those of you more adventurous types limited by neither age-appropriate material nor political correctness, search YouTube.com for IRS Videos.  While the majority of the video material is produced by the government, you never know what might pop up! The “real” stuff is valuable and worth the read. Consider previewing  the YouTube material in advance but otherwise, dig in and make a night of it!

A recent list of last minute tips from the IRS includes the following -

• The world has changed. Avoid using paper tax forms. File electronically for free on IRS.gov using their Free File Fillable Forms or Traditional Free File.
• Check social security numbers (SSN) CAREFULLY. Make certain ANY documents you include with the official IRS tax forms have a heading that includes the social security number of the primary tax payer AND the tax year.  If you have a balance due and are sending a check to the IRS as payment, include your SSN, the particular tax form you are using (1040, 1040A, 1040EZ, etc.), and the tax year for which you are sending payment on the check. The IRS also recommends putting a day-time phone number somewhere on the check. I am old-fashion; I put the tax information in the upper left corner of the check above my name (and address if appropriate).  I would put a day-time phone number in the lower left memo section!
• Check all your calculations. An old accounting trick is to check totals by adding numbers from the bottom up rather than from the top down. Change the order or sequence in the way you read or add numbers to make certain you eyes aren’t playing tricks on you.
• Reconfirm which line AND column of tax tables or IRS charts you are using when you determine some value from published information.  Read the “At Least” AND the “But Less Than” columns carefully!
• If you mail your return to the government, confirm that the address is correct in the “Where Do You File?” section on IRS.gov or in your tax instruction booklet. The address you use to mail a tax return with a balance due (you owe money to the government) is DIFFERENT from the address you use if you expect or are claiming a tax refund.
• If you are mailing a payment for a tax balance due the government, write the check out to the “United States Treasury”. Send the payment with IRS Form 1040-V, Payment Voucher.
• Consider electronic payments where you authorize electronic funds withdrawals or use a credit card.  Use the search feature on IRS.gov to learn more information about electronic payment options.
• Consider filing IRS Form 4868, Application for Extension of Time to File US Individual Income Tax Return or IRS Form 9465, Installment Agreement Request. Make certain you read the documentation carefully.