Filing an IRS Schedule C or Schedule C-EZ

An individual person, conducting business as an independent contractor or as a sole proprietor, reports their income and expenses from their business activities on a Schedule C or Schedule C-EZ.

What is the difference between a Schedule C and a Schedule C-EZ?

As the name implies the Schedule C-EZ Net Profit from Business is a much easier form to complete.

You can prepare and file a Schedule C-EZ if you met all of the following qualifications:

• Have business expenses of $5,000 or less.
• Use the cash method of accounting.
• Do not have inventory at any time during the year.
• Did not have a net loss from your business.
• Had only one business.
• Have no employees.
• Do not depreciate any business property.
• Do not claim expenses for business use of your home.
• Do not carry over passive activity losses from an earlier tax year

If you do NOT meet all of these qualifications, you will be required to file a IRS Schedule C Profit or Loss From Business.

I have found a very good resource for preparing your IRS Schedule C form. It is the book: Schedule C: from A to Z (The Sole Proprietor's Guide to Tax Savings)

It tells line by line how to prepare the form and explains in detail what each category of expense entails. If you’re a sole proprietor responsible for filing Schedule C, this book helps you accurately categorize your business expenses and report them on each line. You can also use it to plan your tax strategies early in each year.

By knowing which business expenses will be deductible, you can estimate your tax liability and find ways to reduce your taxes. You can also use this book in conjunction with Schedule C to organize your bookkeeping and record keeping.

Whether you use computer software or a paper ledger to track expenses, you can set up your recordkeeping to reflect each line on Schedule C. At the end of the year, you simply fill out Schedule C using your records that match the schedule line-for-line.

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