Schedule C

Out of Scope by [line number]:
  • Not materially participating in the business
  • Expenses exceed income (net business loss)
  • Expense for contract labor
  • Any single expense over $2,500
  • Total expenses over $25,000
  • Net self-employment income over $157,500
  • Actual expense calculation for car/truck use
  • Hobby or Not-for-profit activity
  • Anything involving depreciation, depletion or amortization
  • Returns and allowances
  • Cost of goods sold
  • Casualty losses
  • Vehicle rental or lease expenses of more than 30 days
  • Schedule C > Income > Other income
  • Any bartering or cryptocurrency transactions
  • Installment sales income (Form 6252)
  • Business had inventory during the year (for 2018+, see below)
  • Used other than cash method of accounting (i.e., accrual method)
  • Expenses for employees
  • Business requires filing of any Form 1099
  • Business use of home (including Simplified Home Office Deduction)
  • Has prior-year unallowed passive activity losses
  • Receipt of credit card (or similar) payments that are not all income
  • General Business Credit (Form 3800)
  • QBI pass-through entities with business income
  • QBI with taxable income > $157,500 ($315,000 if MFJ)

Is it a business?

An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. For further discussion and examples, go here.

To report income from a nonbusiness activity, use Form 1040, line 21. (i.e. Federal Section > Income > Other Income > Other Inc. Not Reported elsewhere TS page)

If the taxpayer received a 1099-MISC with an amount in Box 7 (Nonemployee compensation) and it is not self-employment, then enter the Box 7 amount as Box 3 (Other income) instead.


Tax Slayer entry:

Federal Section > Income > Profit or Loss From A Business


Basic Information About Your Business

  • You can use the Business Activity Code link provided by Tax Slayer or the Business Code tool.

Income:

1099-Ks:

  • Include the amounts from Forms 1099-K in with other gross receipts on line 1.
  • Any adjustment to amount on Form 1099-K is OUT OF SCOPE.

Family Caregivers:

  • If the taxpayer received a 1099-MISC with an amount in box 7 (non-employee compensation) for care of a family member, it is reported as self-employment income only if the taxpayer is engaged in a care-giving trade. If not, it is reported as Other Income on 1040 line 21.
  • If engaged in a care-giving trade, it may be deducted as a business expense unless it is for care of more than 5 adults or 10 children.

Uber/Lyft drivers:

Drivers will receive one of more of the following:

  • 1099-K
    • Box 1a of the 1099-K is entered on line 1 of the SCH C – there is no 1099-K form in TaxSlayer.
  • 1099- MISC for payments they received from the company for referring new drivers.
  • Year End Statement/Tax Summary. This shows income and expenses assessed or deducted by Uber/Lyft. Make sure it matches the 1099-K and/or 1099-MISC.
  • Cash (tips)

Business codes to use:

Uber/Lyft 485990 All other transit and ground passenger transportation
GrubHub/DoorDash 492000 Couriers and messengers

Drivers probably have other expenses they can deduct on their SCH C, for example:

  • Bottled water, snacks and amenities for customers
  • Mobile phone expenses and accessories used for business
  • Mileage while driving around waiting for a customer (Uber/Lyft only report the mileage on their statements while a customer was in the car)
  • Business taxes and licenses
  • Out-of-pocket city and airport fees
  • Out-of-pocket freeway, highway, and bridge tolls
  • Electronic toll transponder
  • Mileage tracking software
  • Office supplies

Some items may be pro-rated:

  • Car washes
  • Cell phone mount
  • Flashlights, flares, first-aid kit, road-side assistance plans
  • Car loan interest, ownership tax
  • Dash-cam (case could be made for 100%)

General Expenses:

NEW IN 2018: Self-employed taxpayers with Medicare or private health insurance may now claim the health insurance deduction on Form 1040 line S1-29 for any open tax year.

Enter on Federal Section > Income > Profit or Loss From A Business Schedule C > General Expenses > Health Insurance.

  • Any amount not offsetting business income will automatically carry to Schedule A.  But, entering insurance here is OUT OF SCOPE if the taxpayer is eligible for PTC. It can only go on Schedule A.
  • It may not always be advantageous to take this credit. Check the AGI before entering it and after entering it. It may be better to enter it on Schedule A with other medical expenses, even if not itemizing. (This credit does not reduce the actual SE income nor SE tax thus not required to be used.)

Also, entertainment costs are no longer allowed as business expenses for 2018 and later.

  • All allowable business expenses must be claimed.
  • Individual expense items costing more that $2,500 must be depreciated and thus puts the return OUT OF SCOPE.
  • We cannot adjust business expenses to put the return in-scope or to maximize EIC or other benefits.
  • Clothing must be unique for the business (special protective or identity clothing)
  • Expenses that don’t fit a provided category can be enumerated in the Other Expenses TS page.
  • ⚠ CAUTION : For 2015-2017 only, if you worked for someone else as an employee, expenses go on Schedule A (Federal Section > Deductions > Itemized Deductions > Unreimbursed Employee Business Expense)

Inventory:

New in 2018: Inventory purchased but unused in the current tax year can now be deducted as Cost of Goods sold for that tax year. It is then not carried forward as inventory.

Enter on Federal Section > Income > Profit or Loss From A Business Schedule C > Cost of Goods Sold > Materials and supplies

Prior to Tax Year 2018, inventory remains OUT OF SCOPE


Car and Truck Expenses:

  • We can prepare returns using the standard mileage rate only.
  • And, the business portion of the ownership tax and car loan payment interest can be deducted on Schedule C. (The personal use portion of ownership tax can be deducted on Schedule A but not the interest.)
  • Which trips are deductible? See the travel map.
  • Actual expenses should include depreciation and are thus OUT OF SCOPE.
Qualified Business Income (QBI) deduction

Qualified Business Income (QBI) Deduction:

  • Automatically calculated by TaxSlayer
  • Individual taxpayers can deduct up to 20% of qualified business income (QBI)
  • Pass-through entity business income:
    • Such as partnerships, S corporations, limited liability companies
    • All pass-through entities with business income are OUT OF SCOPE
  • Real Estate Investment Trust (REIT) 199A dividends 
  • Scope:
    • if taxable income (before the QBI deduction) exceeds $157,500 ($315,000 if MFJ) the return is OUT OF SCOPE
    • Other scope limitations may reduce these income limits