Sole Proprieter
Annual Tax Return: IRS 1040 Schedule C

Sole proprietors report their business income by attaching schedules to their personal federal 1040 tax return. After combining Schedule C income with your other adjusted gross income, pay any tax that wasn't withheld from other jobs or paid quarterly with 1040ES with this form.

Forms to use

Schedule C-EZ Annual Business Return for Small Sole Proprietors

Schedule C Annual Business Return for Sole Proprietors

Do you qualify?

There is an easy Schedule C-EZ for businesses which:

  • Use cash accounting
  • Have business expenses of $5,000 or less
  • Made a profit (not a loss)
  • No home office expenses to declare
  • No inventory
  • Only one business
  • No employees
  • No equipment to depreciate

Inventory?

If your business has inventory, it should be using the accrual method of accounting (see Accounting Systems). Report your cost of goods sold (the cost of any inventory that you sold) in Part III on the back side of Schedule C.

Cars for employees

Employers who provide vehicles to their employees do not have to keep reports of vehicle use IF they have a written policy that prohibits personal use. Commuting is allowed under limited circumstances. The written policies must meet specific IRS criteria. For complete information, contact the IRS.

Due date April 15

How to complete the Sch. C

Lines and What to enter

A to H Basic questions about your business. On question D, if you do not have employees or a profit sharing plan, you do NOT need an employer ID number.

Part I Total income less returns less the cost of any items sold.

  • For line 4, cost of goods sold, complete Part III of this form and enter the rules on line 4.
  • Part II Expenses (except Home Office Expenses).

    • Line 10 Car and truck expenses - see instructions above
    • Line 13 Depreciation and section 179 expenses must be itemized using IRS form 4562
    • 50% of "reasonable" meals and entertainment are tax deductible.

    29-32 Net profit before and after home business expenses. Home business expenses can only be claimed by Schedule C filers, using IRS form 8829. If your business had a net loss and it was a result of home business expenses, you must carry-forward these home expenses to future years (i.e. you can't lower taxes for non-business income using home expense deductions). Also, if you had a loss but you did not materially participate in the business during the year, you may not be able to take the full loss this year. Contact the IRS or your tax advisor for complete information.

    Part III Cost of Goods Sold. Enter your inventory purchases, cost of your labor, and inventory at the end of the year. You cannot deduct unsold inventory as a business expense this year.

    Part IV Vehicle information. Do not complete this section if you also purchased other business equipment with depreciation or amortization. Complete IRS 4562 instead.

    To submit

    Along with IRS 1040 and Schedule C or C-EZ, remember to include:

    Mail these forms with any taxes due to the IRS.

    Questions? Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at http://apps.irs.gov/app/picklist/list/formsPublications.html.

    Business Property Tax

    Business Property Tax

    Business real property (land, buildings, etc.) and business equipment are subject to an ad-valorem tax in the State of Montana. All non-exempt property is taxed based on its full market value. Different classes of property are subject to different assessment rates. As an example, real property (land and buildings) in the City and County of Butte-Silver Bow is currently taxed at 1.54% of its market value annually (prior to any incentives).

    Equipment taxes

    Business equipment taxes have been declining in recent years because of actions of the Legislature. In 1995, the Legislature enacted a law which results in a continued decline in business equipment property taxes. In 1999, this legislative action has resulted in a decrease in business equipment taxes to 2.39% of the market value annually, prior to the application of any tax incentives.

    Tax on inventory

    Business inventories, goods-in-transit, intangible assets and freeport merchandise are statutorily exempt from property taxation. In addition, business equipment belonging to qualified research and development companies may be taxed at approximately 1% of market value in perpetuity.

    1099M Statement for Independent Contractors

    This form is used to report business you have done with independent contractors (who are not corporations) and medical corporations. Complete Form 1099-Misc:

    • For every individual, sole proprietorship, partnership or medical corporation which you purchased $600 or more for services (not products);
    • If you purchased $5,000 or more of consumer products from a non-corporation that you intend to resell outside a permanent retail establishment;
    • If you paid a non-corporation $10 or more in royalties; or
    • If you paid a landlord $600 or more (and your landlord is not a corporation).

    If you paid over $600 in interest (to a non-corporation), you must file IRS form 1099-I. To request this form, call the IRS at (800) 829-3676 or go to http://apps.irs.gov/app/picklist/list/formsPublications.html

    Forms to use

    1099-M Annual Information Form for Independent Contractors

    1096 Transmittal Form

    Preparing 1099s is not user-friendly. The IRS does not have a direct way to input the information online. Instead, it has authorized companies to be 1099 providers. Do a search on the Internet for current providers and prices.

    How often?

    Annual reporting requirement

    Due date

    January 31 to the recipient

    February 28 to the IRS

    To do it yourself

    Doing it yourself is possible, but not user-friendly. You have to use official IRS forms and must prepare them using a computer or typewriter (remember those?). Here is how to do it:

    Prepare 1 form for each payee.

    Lines and what to do

    Left side

    • Payer is your company
    • Recipient is the person you paid.
    • Payer's federal identification number is your social security number.
    • Recipients' identification number is their social security (if you paid an individual or sole proprietorship), or their SS-4 number if you paid a partnership.
    • Remember, if you paid a corporation, you do not have complete a 1099-Misc.
    • Leave "Account Number" blank unless you use vendor account numbers.

    Right side

    • Fill in the relevant boxes. Here are the most commonly used.
    • 1. Rent to landlords (if you paid more than $600).
    • 7. Compensation to independent contractors for services (if you paid them more than $600).
    • 9. Check the box if you purchased over $5,000 of products for resale from this (non-corporate) vendor.

    How to complete form 1096

    1096 is the transmittal form. It must also be prepared on a computer or typewriter. Prepare one form to transmit all the 1099-Misc.

    Lines and what to do

    Top

    1. Leave blank
    2. Your social security number
    3. Enter the number of 1099s you are enclosing
    4. 0, unless you withheld income tax (line 4 on each 1099-Misc)
    5. Add up boxes, 1,2,3,5,6,7,8, and 10 for all the 1099-Misc's Usually all but 1 and 7 are 0.

    Bottom Check box 1099-MISC - 95

    How to submit

    1. Mail Copy A of 1099-M (the red page) to the IRS with transmittal Form 1096
    2. Mail or deliver Copy B and Copy 2 to the receipient (the person or company you paid)
    3. Keep copy C for your records
    4. The IRS will automatically send your 1099-M information to the state tax authority.

    A few more rules $50 fine for ignoring these rules:

    • Type forms - regular type style
    • Use original forms - no copies
    • Submit entire 8 x 11 page - don't cut it up
    • Don't staple
    • Don't use dollar signs, commas or other symbols, except you should use decimal points to show dollars and cents.

    Questions? For forms call (800) 829-3676. You cannot obtain original forms from the Internet. For information, call (800) 829-4933 or read Publication 937 Business Reporting.