Sample Filled-In Forms

This section will familiarize you with Schedule C (Form 1040), used to report business income or loss, and Schedule SE (Form 1040), used to figure self-employment tax. The line numbers in bold type follow the line numbers on the form being discussed.

Schedule C

If you are the sole owner of an unincorporated trade or business, report business income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). If you own more than one business, or if you and your spouse have separate businesses, file a separate Schedule C or Schedule C-EZ for each business.

Samples of Schedule C and Schedule SE for Kathleen Woods are illustrated on the following pages. (Amounts have been rounded to the nearest dollar.)

Kathleen Woods is a secretary for a small firm. She reports her salary of $15,000 on line 7 of Form 1040.

Kathleen is also a direct seller of household cleaning products manufactured and distributed by Spotless, Inc. She reports the income and expenses of her selling business on Schedule C because she is self-employed.

Kathleen uses the cash method of accounting and files her return on a calendar-year basis. She has no employees and does not keep an inventory of the products she sells. Any products ordered for personal use are not shown in purchases, sales, cost of goods sold, or inventory.

Kathleen's customers select the products they want from a catalog listing retail prices for each item. She places an order with Spotless every 10 days, at which time she also pays for her prior order. She receives the items ordered with an invoice payable within 10 days or, if sooner, with the next order. When she delivers the merchandise, she collects the retail (catalog) price for each item. She can get full credit for any items returned to Spotless within 10 days.

Kathleen's cost for each item is 65% of the retail price. During 2000, she had total retail sales of $14,600. She paid Spotless $9,490 for the merchandise she received in 2000. She also received an award of $200 in January for having over $20,000 in total sales in 1999.

Lines 1-3. Kathleen reports $14,600 as her gross sales on line 1. On line 2, she would enter any refunds she had to give on merchandise, as well as adjustments made to customers' purchases. Since she has no entry on line 2, she enters $14,600 on line 3.

Line 4. Kathleen uses Part III to figure her cost of goods sold for the year. She has no inventory at the beginning or end of the year. Therefore, she has no entry on line 35 or line 41 of Part III. She purchased $10,000 worth of household products during 2000 for $9,490. (She received trade discounts of $510.) She enters her net cost of $9,490 ($10,000 - $510) on line 36. She also enters this amount on lines 40 and 42 of Part III and on line 4 of Part I.

Line 5. Gross profit, $5,110, is the difference between Kathleen's net receipts of $14,600 on line 3 and the cost of goods sold of $9,490 on line 4.

Line 6. Kathleen reports the $200 received as a bonus on line 6. She does not include on Schedule C any income not related to her direct-selling business, such as income from investments or her salary. She reports this income on other lines of Form 1040.

Line 7. Kathleen's gross income from direct selling is $5,310, the sum of her gross profit of $5,110 on line 5 and the bonus of $200 on line 6.

Line 8. Kathleen gave her customers samples that cost $48. This amount was not included in the cost of goods sold on line 4.

Line 10. Kathleen's business mileage was 2,100 miles, and her total 2000 mileage was 6,000 miles. She used her car 35% for business. She uses the standard mileage rate to figure the deduction of $682 (2100 x .325).

Kathleen must also complete Part IV of Schedule C.

Line 16b. $280 is 35% of the total interest of $800 paid during the year on Kathleen's car loan.

Line 18. Kathleen spent $260 for various office supplies and postage for her direct-selling business.

Line 22. Kathleen paid $392 in 2000 for order blanks, bags, and miscellaneous selling supplies.

Line 23. $168 is 35% of the personal property tax of $480 Kathleen paid on her car in 2000.

Line 24. Kathleen attended two direct-selling seminars during 2000. Her travel expenses, including lodging, were $515, which she entered on line 24a. Her meals and entertainment, subject to the 50% limit, were $200 and were entered on line 24b. The nondeductible amount of $100 is shown on line 24c and the net deduction of $100 is shown on line 24d.

Line 25. Kathleen uses her second telephone 100% for business purposes. She paid $264 for local service on her second phone and $62 for long-distance calls. She enters the total of $326 on this line. She has no deduction for other utilities because she does not use any part of her home exclusively for business.

Line 27. This line is for other direct-selling expenses not listed separately on the schedule. These other expenses are listed in Part V on page 2. Kathleen paid $35 to her bank for check printing and account charges for her separate business bank account. She paid $30 to a local business association and $38 for a 1-year subscription to a retail sales magazine. She enters these expenses, along with the $199 she paid for catalogs, in Part V. She totals the expenses, $302, on line 48 and enters the total on line 27.

Line 28. Kathleen adds all her business deductions listed on lines 8 through 27 and enters the total of $3,073 on this line.

Line 29. Kathleen subtracts her total deductions on line 28 from her Schedule C gross income on line 7. Because her gross business income is greater than her total deductions, she has a tentative profit of $2,237.

Line 30. Kathleen did not use any part of her home for business, so she does not make an entry here.

Line 31. Kathleen has a net profit of $2,237 (line 29 - line 30). She enters her net profit here, on line 12 of Form 1040, and on line 2, Section A of Schedule SE (Form 1040).

Line 32. Kathleen does not have a loss, so she skips this line. If she had a loss and was not "at risk" for all her investment in the business, she would have to attach Form 6198. See the Schedule C instructions for the meaning of "at risk."

Short Schedule SE

Kathleen uses Short Schedule SE (Form 1040), because her net earnings from self-employment are more than $400 and the total of her net earnings plus her wages subject to social security and Medicare taxes (FICA) are not more than $76,200.

Line 2. Kathleen enters $2,237, the amount from line 31 of Schedule C (Form 1040).

Line 3. Kathleen enters the amount from line 2, $2,237.

Line 4. Kathleen multiplies her net profit by .9235 and enters the result, $2,065.

Line 5. Kathleen multiplies $2,065 (line 4) by .153 and enters $316 as her self-employment tax. She also enters this amount on line 52 of Form 1040.

Line 6. Kathleen enters one-half of the amount from line 5. She also enters this amount on line 27 of Form 1040 as an adjustment to income.

Schedule C (Form 1040), page 1, for Kathleen Woods

Schedule C (Form 1040), page 2, for Kathleen Woods

Schedule SE (Form 1040), page 1, for Kathleen Woods

Previous| First | Next

Publication Index | IRS-Forms Main | Home