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Schedule C

Tax Year 2013

 

Profit or Loss from Business
This form is used to report income and expenses if the taxpayer was a sole-proprietor, in other words the owner of an unincorporated business. This form can also be used to report non-employee compensation, some miscellaneous income items, and the expenses related to each.

 

Alternative Forms
The taxpayer may need to use a different worksheet to report their business income and expenses, as follows:

  • Schedule F - If the taxpayer was the sole-proprietor of a farm and materially participated in the farm, use this worksheet to report farm income and expenses instead of the Schedule C worksheet.
  • Form 4835 - If the taxpayer was the landowner of a farm, and did not materially participate in the farm for self-employment purposes, use this worksheet to report farm income and expenses instead of the Schedule C worksheet.
  • Schedule E - If the taxpayer received income from rents and royalties, use this worksheet to report the income and expenses instead of the Schedule C worksheet.
  • Schedule K-1 1065 or Schedule K-1 1120S - If the taxpayer received a Schedule K-1 as a partner or shareholder, use the appropriate worksheet, whichever is applicable, instead of the Schedule C worksheet.
  • Husband and Wife Business - If the taxpayer and spouse owned a business together, see this article to determine which worksheet should be used.

Related Forms
The following forms are automatically generated as required depending on the information entered on this worksheet and optional worksheets added from this worksheet:

Limited Liability Company
If the taxpayer is the member of an LLC, he or she must file as an individual person, a partner, or a corporation shareholder depending on the structure of the LLC, and the tax-treatment elections made by the LLC. Use the appropriate worksheet accordingly.

 

See IRS Pub. 334, Tax Guide for Small Business, and the IRS 2013 Instructions for Schedule C for more information and details.

Directions
Follow the directions below to complete the first Schedule C worksheet. Each sole-proprietorship owned and operated by the taxpayer and/or spouse should be reported on a separate worksheet. After completing the first Schedule C worksheet, click "Add" next to "Schedule C - Profit or Loss from Business" from the Federal Worksheets page to open a new Schedule C worksheet and add it to the return.
General Business Information
Taxpayer or Spouse Business Owner Identification
Select whether this business belongs to the taxpayer or spouse.

 

If the taxpayer and spouse own an unincorporated business together, see Husband and Wife Business to determine which worksheet should be used, and how to enter information into this worksheet, if applicable.

Line A Principal Business or Profession
Enter a short description of the business owner's principal business or profession that provides the principal source of income for this business.

 

Include the general field, activity, product, service, and/or type of clientele which accurately describes this business.

Line B Business Code
Enter the six-digit code that identifies the taxpayer's principal business or professional activity.

 

The user can click the "List of Codes" link next to Line B and a new window will open with a complete list of occupations. Click on the code or occupation, and the code will autopopulate into the Schedule C Worksheet.  

Line C Business Name
Enter the business name, only if applicable.
Line D Employer ID
Enter the taxpayer's business Employer Identification Number (EIN) issued by the IRS, only if applicable.

 

This number is required if the taxpayer had a qualified retirement plan or was required to file an employment, excise, estate, trust, or alcohol, tobacco, and firearms tax return.  

 

Do not enter the taxpayer's SSN.

Line E Business Address
Enter the business street address if it is different from the taxpayer's home address already entered. Include the suite or room number, if any.

 

Do not enter a P.O. Box or any other type of non-physical address.

State Returns Select "Yes" if the user wants the information entered on this federal Schedule C worksheet incorporated into the taxpayer's state return. Otherwise, select "No".
Line F Accounting Method
Select the accounting method for this business as follows:
  • Cash
  • Accrual
  • Other-Include description

See Accounting Methods for details on using each accounting method, and the requirements to be eligible for a specific accounting method, and how to change from one accounting method to another.

Line G Material Participation
Select "Yes" if this business meets any of the following requirements, which exempt the limitation of business losses from the passive activity rules:
  • The business was not a rental activity, and the taxpayer meets one of the tests for material participation,
  • The business was a rental activity, but the activity is one of the 5 exceptions of rental activities, and the taxpayer meets one of the tests for material participation.
  • The business was a rental real estate activity, and the taxpayer was a real estate professional, or
  • The taxpayer meets the exception for an oil or gas activity.

Otherwise, select "No".

 

See Form 8582 for the details and requirements to meet these tests of exemption from the passive activity rules.

 

Note: Form 8582 will be automatically added to this return if applicable.

Business Activity Disposed Check the box if this business activity was disposed of during the tax year.
Prior Year Unallowed Loss Enter the prior year loss for this activity from Worksheet 5, column (c) of the previous year's Form 8582, if applicable.
Line H New Business
Check the box if this is a new business the taxpayer began during the tax year, or if the taxpayer acquired this business during the tax year.

 

Additionally, check the box if the taxpayer is reopening a business and as a result, did not file a Schedule C for this business the previous year.

Line I Form 1099
Select "Yes" if the taxpayer made payments that would require filing Form 1099.

 

The taxpayer may be required to file different Form 1099s for various reasons. The most normal circumstance is when the taxpayer makes a payment of at least $10 or more in Royalties or if the taxpayer makes a payment of at least $600 or more to an individual for any type of service for the business. See the 2013 Instructions for Form 1099-MISC, the 2013 Instructions for Form 1099-K,  and the 2013 General Instructions for Certain Information Returns for details.

Line J All Required Form 1099s Filed
Select "Yes" if the taxpayer answered "Yes" to the previous question and all required Form 1099s have been filed or will be filed.
Line K Investment in Business At Risk
Select "All investment is at risk" if the taxpayer meets the requirements which exempt the limitation of business losses from the at risk rules.

 

Otherwise, select "Some investment is not at risk".

 

See Form 6198 for the details and requirements to meet these tests of exemption from the at risk rules.

 

Note: Form 6198 will be automatically added to this return if applicable.

Prior Year Basis from Form 6198 Enter the prior year basis in this activity, which can be found on Line 10b of the previous year's Form 6198, if applicable.
Prior Year Gain or Loss Enter the prior year gain or loss for this business activity, which can be found on Line 5 of the previous year's Form 6198, if applicable.
Adjusted Basis This amount is the taxpayer's adjusted basis in this business activity on the first day of the tax year, and will be automatically calculated. It is here for informational purposes only.
Part I - Income
Line 1b Gross Receipts of Sales
Enter all gross receipts from the taxpayer's trade or business including the amount included on Form 1099-K.

 

Include amounts the taxpayer received in the taxpayer's trade or business that were properly shown on a Form 1099-MISC. If the total amounts reported in Boxes 7 of Forms 1099-MISC are more than the total the taxpayer is reporting on this line, retain a statement explaining the difference with the taxpayer's copy of his or her return. Attach the statement to the taxpayer's return if the taxpayer is printing and mailing the return to the IRS.

Checkbox Statutory Employees
Check the box if the taxpayer received a W-2 and "Statutory employee" is checked in Box 13.

 

Do not enter the amount of wages reported in Box 1 on this worksheet. This income will be automatically added to the return.

 

Include expenses related to the statutory employee income in this worksheet.

 

If the taxpayer had both self-employment income and statutory employee income, the taxpayer must complete separate worksheets for each.

Line 2 Returns and Allowances
Enter the amount of returns and allowances, including refunds made to customers, rebates given, and other allowances subtracted from gross receipts.

 

Do not include any amounts already subtracted from Line 1 above.

Line 6 Other Income
Enter all other income received by this business activity, including the following:
  • Amounts from finance reserve income,
  • Scrap sales,
  • Bad debts the taxpayer recovered,
  • Interest (such as on notes and accounts receivables),
  • State gasoline or fuel tax refunds the taxpayer received in the current tax year,
  • Credits for federal tax paid on gasoline or other fuels claimed on the taxpayer's prior year Form 1040,
  • Prizes and awards related to the taxpayer's trade or business,
  • Amounts received by the business, and shown on Form 1099-PATR,
  • Recapture of the deduction for clean-fuel vehicles and clean-fuel refueling property used in the business,
  • Recapture of excess depreciation or section 179 expense deduction for listed property that dropped below 50% business use during the tax year,
  • Other kinds of miscellaneous business income.
Part II - Expenses
The taxpayer must differentiate between expenses, capital property, and cost of goods sold in order to properly enter the following information. See Expenses, Capital, and COGS for more information and details.
Line 8 Advertising Expenses
Enter the amount paid for advertising during the tax year for this business activity.
Line 9 Car and Truck Expenses
The taxpayer may be able to deduct either the actual expenses paid for the use of a vehicle, or deduct the standard mileage rate for business miles driven. There are no requirements to use the actual expense method, however, there are requirements to use the standard mileage rate, as explained below.

 

Actual Car and Truck Expenses
Enter all of the actual expenses the taxpayer paid for the vehicle(s), including gas, oil, maintenance, tolls, parking fees, etc. if the taxpayer is using the actual expense method.

 

Additionally, the taxpayer must use the "Add Asset" feature at the bottom of this worksheet if the taxpayer is eligible to deduct depreciation for the vehicle(s). If the taxpayer is not taking a depreciation deduction for a vehicle, the information for that vehicle must be entered in Section IV below.

 

Alternatively, see the directions below to use the standard mileage rate for the car and truck expense deduction.

 

See IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses for more information and details.

Checkbox for Standard Mileage Deduction Standard Mileage Rate
Check the box if the taxpayer is eligible to take the standard mileage deduction and did not enter all actual expenses above.

 

Additionally, enter only amounts paid for tolls and parking below on Line 27a, and the information for the vehicle(s) must be entered in Part IV below.

 

Note: The standard mileage deduction will be calculated based on the information entered on Lines 44a-44c below in Section IV.

 

Eligibility
The taxpayer can take the Standard Mileage Rate only if the taxpayer meets all of these requirements:

  • He or she owned the vehicle and used the standard mileage rate for the first year the taxpayer placed the vehicle in service,
  • He or she leased the vehicle and are using the standard mileage rate for the entire lease period (except the period, if any, before 1998),
  • He or she did not use the vehicle for hire, such as a taxicab, or
  • He or she did not use five or more vehicles simultaneously in the business activity.

 

Standard Mileage Rate for 2013
The standard mileage rate is 56.5 cents per business mile driven for the 2013 tax year.

 

Do not deduct depreciation by adding the vehicle as an asset, or deduct rent or lease payments, or the taxpayer's actual operating expenses when using the standard mileage rate. To use these deductions, the Actual Expenses method as explained above must be used.

Line 10 Commissions and Fees
Enter the total cost of any commissions and/or fees paid during the year for this business activity.
Line 11 Contract Labor
Enter the total cost of contract labor for the tax year, except do not include contract labor deducted elsewhere on the return such as contract labor included in Part III for Cost of Goods Sold.

 

Do not include salaries and wages paid to employees. These amounts are reported on Line 26.

Line 12 Depletion
Enter the taxpayer's deduction for the tax year for depletion.

 

Depletion is the consumption of natural resources when mining, quarrying, drilling, or felling. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves.

 

See Chapter 9 of IRS Pub. 535, Business Expenses for more details and information.

Line 14 Employee Benefits
Enter the amount of contributions the taxpayer made to an employee benefit program that are not an incidental part of a pension or profit-sharing plan included on Line 19, including accident and health plans, group-term life insurance, and dependent care assistance programs.

 

Do not include any amounts paid for the taxpayer, his or her spouse, or dependents. Instead, include these amounts on Line 15a below.

Line 15 Business Insurance Expense
Enter the amount of business insurance paid by the taxpayer, with the exception of employee accident and health insurance, which was already entered as part of an employee benefit program.

 

Do not include amounts paid for a policy that insures the taxpayer against losses of earnings due to sickness or disability, or amounts credited to a reserve for self-insurance. These amounts are not deductible.

Line 15a Health Insurance Expense
Enter the amount paid for health insurance premiums for the taxpayer, spouse, and dependents only. This amount will be reported on line 29 of Form 1040.

 

Do not include any amounts reported here as part of amounts paid for the Employee Benefit Program above, even if these amounts were billed together.

 

Note: Do not report payments made to a pension, profit-sharing, annuity, SEP, SIMPLE, or other qualified plan on behalf of the taxpayer/employer here. Instead, enter the information on Line 28 of the Adjustments to Income worksheet.

Lines 16a and 16b Interest Allocation Rules
This line is used only for interest paid on loan proceeds that were used in this business activity to purchase property or pay operating expenses. This line is not used for any loan proceeds that were used for personal expenses, other properties, or investments. The taxpayer must differentiate between the property used to secure the loan, such as the taxpayer's home or business property, and what the proceeds of the loan were used for, such as business property, personal property, or business operating expenses.

 

Line 16a-Amounts Reported on Form 1098
Enter the full amount of interest paid by the taxpayer for a mortgage that is secured by real property used in this business activity that does not include the taxpayer's home, if that interest was reported on Form 1098.

 

Enter other amounts of interest paid for proceeds of a loan used by this business activity, including loans secured by the taxpayer's home, as allowed by the Interest Allocation Rules in Chapter 4 of IRS Pub. 535, Business Expenses, if that interest was reported on Form 1098.


Line 16b-Amounts Not Reported on Form 1098
Enter the full amount of interest paid by the taxpayer for a mortgage that is secured by real property used in this business activity that does not include the taxpayer's home, if that interest was not reported on Form 1098.

 

Enter other amounts of interest paid for proceeds of a loan used by this business activity, including loans secured by the taxpayer's home, as allowed by the Interest Allocation Rules in Chapter 4 of IRS Pub. 535, Business Expenses, if that interest was not reported on Form 1098.

 

Do not include interest the taxpayer prepaid during the tax year for future tax years.

Line 17 Legal & Professional Services
Enter fees charged by accountants, attorneys, and other professionals that are directly related to operating the taxpayer's business.

 

Include fees for tax advice related to the taxpayer's business and for the preparation of tax forms related to the business. Also include expenses incurred in resolving asserted tax deficiencies relating to the business.

 

See IRS Pub. 334, Tax Guide for Small Business and IRS Pub. 535, Business Expenses for more information and details.

Line 18 Office Expenses
Enter the amount paid or incurred for office supplies, postage, and other office expenses for this business activity.
Line 19 Pension Plan Expenses
Enter the amount of contributions the taxpayer paid to an employee pension, profit-sharing, or annuity plan.

 

The taxpayer may also need to file Form 5500 or Form 5500-EZ. See IRS Pub. 560, Retirement Plans for Small Business for more details.

 

Do not include any amounts paid for the taxpayer, his or her spouse, or dependents. Instead, include these amounts on Line 28 of the Adjustments to Income worksheet.  

Lines 20a and 20b Rent or Lease
The taxpayer may have to reduce the amount of a deduction for the lease of a vehicle with a term of 30 days or more. See IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses for more details.

 

Line 20a
Enter the amount the taxpayer paid for the rent or lease of vehicles, machinery, or other equipment for use in the business activity. Reduce this amount as required by IRS Pub. 463 as explained above.  

 

Line 20b
Enter the amount the taxpayer paid for the rent or lease of real property, such as office space or warehouse facility, for this business activity.

Line 21 Repairs and Maintenance
Enter the amount the taxpayer paid for repairs and maintenance of buildings, machinery, and equipment used in this business activity. Include amounts the taxpayer paid for small tools with a short life or minimal cost.

 

Do not deduct amounts for repairs that add value to the property or appreciably prolong the property's life. These costs must be depreciated over time-See "Depreciation" below.

Line 22 Supplies
Enter the amount paid during the tax year for incidental supplies used for the business that are generally kept on hand for availability of use.

 

Include the costs of books and professional instruments that have a useful life of less than one year.

 

 Important Note: See Expenses, Capital, and COGS for more information on deducting the costs of supplies that must be calculated as inventory and business assets that have a useful life of more than one year.

Line 23 Taxes and Licenses
Enter the amount of any of the following taxes or license fees the taxpayer paid during the tax year for this business activity:
  • State and local sales and use taxes imposed on the taxpayer as the seller of goods or services - If the taxpayer collected this tax from the buyer, the taxpayer must also include the amount collected in gross receipts or sales on line 1 if it is entered here.
  • Real estate and personal property taxes on business assets
  • Licenses and regulatory fees for the taxpayer's trade or business paid each year to state or local governments - However, certain licenses are classified as Section 179 Intangibles, such as liquor licenses, and must be amortized. See IRS Pub. 535, Business Expenses for details.
  • The taxpayer's share of Social security and Medicare taxes,
  • Federal unemployment tax paid
  • Federal highway use tax paid
  • Contributions to state unemployment insurance fund or disability benefit fund if they are considered taxes under state law 
Do not enter any of the following on this line:  
  • Federal income taxes, including the taxpayer's self-employment tax
  • Estate and gift taxes
  • Taxes assessed to pay for improvements to real property, such as paving and sewers
  • Taxes on the taxpayer's home or personal use property
  • State and local sales taxes on any type of property purchased for use in the business, which must be depreciated as part of the cost of the property
  • State and local sales taxes imposed on the buyer that the taxpayer as the seller was required to collect and pay over to the state and/or local governments - These taxes are not included in gross receipts or sales nor are they a deductible expense. However, if the state or local government allowed the taxpayer to retain any part of the sales tax the taxpayer collected (such as a credit for collection efforts), the taxpayer must include that amount as income on line 6.
  • Any taxes and license fees not related to the taxpayer's business
Line 24a Travel Expenses
Enter the taxpayer's expenses for lodging and transportation connected with overnight travel for business while away from the taxpayer's tax home (defined below).

 

Include in this amount incidental expenses, including fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards and stewardesses and others on ships, and hotel servants in foreign countries. Alternatively, an optional method of deducting $3 per day for incidental expenses can be used only if the taxpayer did not pay or incur any meal expenses on that same day. (See Meals and Entertainment Expenses below.) The alternative method does not include the following: laundry, cleaning, pressing of clothing, lodging taxes, or costs of telegrams or telephone calls. These expenses can be separately deducted if related to the overnight travel for business.

 

Do not include the following:

  • Travel expenses for the taxpayer's spouse, dependent, or any other individual unless that person is the taxpayer's employee, the travel is for a bona fide business purpose, and the expenses would otherwise be deductible by that person
  • Expenses for attending a foreign convention unless it is directly related to the taxpayer's trade or business, and it is as reasonable for the meeting to be held outside the North American area as within it - These rules apply to both employers and employees. Other rules apply to luxury water travel.
  • Meals and entertainment expenses - These expenses are entered on the next line.
  • Any vehicle expenses entered elsewhere on the return

Tax Home Defined
Generally, the taxpayer's tax home is the taxpayer's main place of business regardless of where the taxpayer maintains the taxpayer's family home. Example: The taxpayer lives in Connecticut and commutes to New York City every weekday for work. The taxpayer's tax home is New York City. The taxpayer needs to stay in New York City for three days for a convention. The expenses of staying in New York City will not be deductible for the taxpayer because this trip is not overnight travel away from the taxpayer's tax home. Generally, the taxpayer cannot deduct expenses paid or incurred in connection with employment away from home if that period of employment exceeds 1 year.

 

See IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses for more information and details.

Lines 24b Meals and Entertainment Expenses
Enter the actual meals and entertainment expenses, or enter the standard meal allowance paid by the taxpayer for this business activity during the tax year.

 

The allowable amount of 50% will be automatically calculated.

 

See Meal Expenses for more information and the requirements to deduct these expenses.  

 

 Note for Daycare Providers: If the taxpayer provides daycare services in the taxpayer's home, see IRS Pub. 587, Business Use of Your Home for information on deducting the cost of meals and snacks the taxpayer provides to the taxpayer's day-care recipients.  

Line 24c Department of Transportation (DOT) Regulation
Check this box if the taxpayer is subject to the Department of Transportation (DOT) hours of service limits during the times the meals reported above were taken.

 

Generally, the taxpayer may deduct only 50% of the taxpayer's business meal and entertainment expenses, including meals incurred while away from home on business. However, for individuals subject to the Department of Transportation (DOT) hours of service limits, that percentage is increased to 80% for business meals consumed during, or incident to, any period of duty for which those limits are in effect. Individuals subject to the DOT hours of service limits include the following persons:

  • Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations.
  • Interstate truck operators who are under DOT regulations.
  • Certain merchant mariners who are under Coast Guard regulations.

The allowable amount of 80% will be automatically calculated if this box is checked.

Line 25 Utilities
Enter the total amount of utility expenses for this business activity, including electricity, phone, and gas services.

 

Include the business portion of a home phone used, however, do not include any amount of the base rate for local service, including taxes.

 

Do not include any amounts that will be entered on Form 8829 worksheet.

Line 26 Wages Paid
Enter the total salaries and wages paid to employees during the tax year.

 

Reduce the deduction by the current year federal credits claimed on any of the following forms:

  • Form 5884, Work Opportunity Credit, line 2;
  • Form 5884-A, Credits for Affected Midwestern Disaster Area Employers, line 6
  • Form 8844, Empowerment Zone and Renewal Community Employment Credit, line 2;
  • Form 8845, Indian Employment Credit, line 4; and
  • Form 8932, Credit for Employer Differential Wage Payments, line 2

Do not include amounts paid to the taxpayer or any amounts already entered elsewhere on the return.

Line 27 Other Expenses
Enter all additional ordinary and necessary business expenses not deducted elsewhere on Schedule C. Describe the type and enter the amount of each expense separately in the lines provided.

 

Do not include any of the following amounts, which are either not deductible, or must be entered elsewhere on the return:

  • The cost of business equipment or furniture, and/or replacements or permanent improvements to property;
  • Personal, living, and/or family expenses;
  • Charitable contributions; and/or
  • Fines or penalties paid to any local, state, federal, or foreign government for violating any law.

To Add More Than One Expense
Click the add icon to save the line entry. A new line will appear for an additional entry if needed.

 

The taxpayer can edit the information by changing the text or amounts in the boxes after the line entry has been saved, or delete the line entry by clicking on the delete icon to the left of the line item. 

 

See IRS Pub. 535, Business Expenses for more details and information on Business Expenses.

Business Use of Home If the taxpayer used his or her home as a home office, click the "Home Office Expense Deduction (Form 8829)" link to add this worksheet.

 

See Form 8829 for instructions on entering the appropriate information into this worksheet.

Add Asset If the taxpayer purchased or placed assets into service during this tax year, or any previous tax year, click the "Add Asset" link to open the Asset - Depreciation Worksheet.

 

See Add Asset for instructions on entering the appropriate information into this worksheet.

Part III - Cost of Goods Sold
The taxpayer must enter some amounts paid as Cost of Goods Sold and account for inventory if he or she meets certain requirements. See Expenses, Capital, and COGS for more information and details.  
Line 33 Method of Inventory Value
Select the following type of method the taxpayer uses to value inventory:
  • Cost,
  • Lower of cost or market, or
  • Other - Enter the description.

The taxpayer must use the Cost method of valuing inventory if he or she uses the cash method of accounting.

 

For more information on valuing methods for inventory, see Expenses, Capital, and COGS.

Line 34 Change in Valuing Quantities, Costs, or Valuations
Select "Yes" if there were any changes in the valuing method used to determine quantities, costs, or valuations between the opening and closing inventory of the tax year. Otherwise, select "No".
Line 35 Value of Inventory-Beginning of Year
Enter the value of the inventory of this business activity at the beginning of the tax year, according to the valuing method selected above.
Line 36 Purchases Less Cost of Items Withdrawn for Personal Use
Enter the costs of all products purchased for resale and/or the cost of raw materials purchased for integration into a finished product.

 

Reduce this amount by the costs of any items that were used for personal use.

Line 37 Cost of Labor
Enter all labor costs associated with the manufacturing or mining of the product, including both direct and indirect labor costs.

 

These costs can be described as follows:

  • Direct Labor - Direct labor costs are wages paid to those employees who spend their time working directly on the product being manufactured. These wages also include the part of the wages paid to employees who work directly on the product part time if the taxpayer can determine that portion of their wages.
  • Indirect Labor - Indirect labor costs are wages paid to employees who perform general factory functions that do not have any immediate or direct connection with making the finished product, but are still a necessary part of the manufacturing process.
  • Other Labor - Other labor costs are not properly chargeable to the cost of goods sold and may be deducted as sales or administrative expenses.
Line 38 Materials and Supplies
Enter the cost of materials and supplies that are used in the manufacturing or mining of the finished product.

 

Do not including amounts already entered on Line 22 above.

Line 39 Other Costs
Enter any other costs incurred in the manufacturing or mining process the taxpayer accounts as cost of goods sold. The following are examples only:
  • Containers - Containers and packages that are an integral part of the manufactured product are a part of the taxpayer's cost of goods sold. Example: The bottle that holds bottled water. If they are not an integral part of the manufactured product, their costs are freight and/or sales expenses. Example: A box used to ship a computer.
  • Freight and Storage - The cost of freight for raw materials, supplies, and products for resale the taxpayer purchases for sale are all part of cost of goods sold. The storage cost to store the goods is also included in cost of goods sold. The freight costs to send the final product to its final destination are not accounted as cost of goods sold.
  • Overhead Expenses - Overhead expenses that are a direct and necessary expense of manufacturing the product are part of the taxpayer's cost of goods sold. These include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision of the facility where a product is manufactured. Example: The expenses paid to operate a factory. The overhead expenses not directly related to the manufacturing process are not included, such as the overhead expenses of the sales office.
Line 41 Value of Inventory-End of Year
Enter the value of the inventory of this business activity at the end of the tax year, according to the valuing method selected above.
Part IV - Information on Vehicle(s)
Enter the information for up to two vehicles that were used in this business activity if either of the following situations are applicable:
  1. The taxpayer is taking the standard mileage deduction for this vehicle, in which case he or she is not permitted to file Form 4562 to claim depreciation for this vehicle, or
  2. The taxpayer is claiming actual car and truck expenses for this vehicle, and is not filing Form 4562 to claim depreciation for this vehicle. Example: The taxpayer is using a vehicle that is no longer eligible for a depreciation deduction.

Note: The standard mileage deduction will be calculated based on the information entered on Lines 44a-44c below if the user checks the box on Line 9 above.

 

See IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses for more information and details on the deductible expenses of vehicles.

Vehicle One - Line 43 Date Vehicle Placed in Service
Enter the date this vehicle was placed into service for this business activity. This will be the same date as the date of purchase only if this vehicle was immediately placed into service after purchase.
Line 44a Business Miles Driven
Enter the total number of miles this vehicle was driven for this business activity during the tax year.
Line 44b Commuting Miles Driven
Enter the total number of miles this vehicle was driven for commuting between the taxpayer's home and the taxpayer's main place of business.

 

Instead of tracking actual miles, the number of days worked can be multiplied by the average commuting distance to determine this amount.

 

If the taxpayer converted a vehicle from personal use to business use, or business use to personal use during the tax year, enter only those commuting miles that were driven during the period of time the vehicle was used for business purposes.

 

Commuting
Commuting is generally travel between the taxpayer's home and work location, and these expenses are not deductible. However, the following types of miles are not defined as commuting miles, and can be entered as business miles:

  • The taxpayer has at least one regular work location away from his or her home, and the travel is to a temporary work location in the same trade or business, where he or she will be working for less than one year, regardless of the distance,
  • The travel is to a temporary work location outside the metropolitan area where the taxpayer lives and normally works,
  • The taxpayer's home is his or her principal place of business, and the travel is to a different work location in the same trade or business, regardless of whether that location is regular or temporary, regardless of the distance.
Line 44c Other Miles Driven (Personal)
Enter all other miles this vehicle was driven for any other purpose other than this business activity or for commuting.
Line 45 Vehicle Available During Off-Duty Hours?
Select "Yes" if this vehicle was available to the taxpayer during hours he or she was not engaged in this business activity. Otherwise, select "No".
Line 46 Another Vehicle Available for Personal Use?
Select "Yes" if the taxpayer has another vehicle to drive for personal use. Otherwise, select "No".

 

Example #1: The taxpayer is an accountant with one main office. He drives to his clients' businesses with his only vehicle that he uses for both work and personal use. The answer to this question would be "No".

 

Example #2: The taxpayer is an accountant with one main office. She drive to her clients' businesses in a small vehicle she purchased that gets goods gas mileage. She also has a larger vehicle she uses for personal reasons such as shopping for groceries and taking her children to school. The answer to this question would be "Yes".

Line 47a Evidence to Support Deduction?
Select "Yes" if the taxpayer has evidence that supports the deduction for this vehicle. Otherwise, select "No".
Line 47b If Yes, is Evidence Written?
Select "Yes" if the taxpayer answered "Yes" to the previous question, and he or she has written evidence to support the deduction. Otherwise, select "No".
Vehicle Two Enter the information for the taxpayer's second vehicle he or she uses for this business activity, if applicable, as directed above for Vehicle One.
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