Schedule C Example

Frank Carter is a sole proprietor who owns and operates a fishing boat. He uses the cash method of accounting and files his return on a calendar year basis. He keeps his business records with a single-entry bookkeeping system, similar to the sample record system illustrated in Publication 583.

Frank has two crew members, Nan Brown and Sandy Green, who are considered self-employed for social security, Medicare, and federal income tax withholding purposes. After certain boat operating expenses are paid, the proceeds from the sale of the catch are divided 75% to Frank and 25% to his crew members.

Frank figures his net profit or loss from his fishing business by subtracting his fishing expenses from his gross income from fishing on Schedule C. He then reports the net profit or loss on line 12, Form 1040.

Schedule C, Page 1

Schedule C (Form 1040)

First, Frank fills in the information required at the top of Schedule C. On line A he enters "Fishing" and on line B he enters 114110, the 6-digit business code for commercial fishing shown in the instructions for Schedule C. He then completes items C through H.

Part I--Income

Frank figures his gross income from fishing in Part I.

Line 1. Frank had sales of $60,288 for the year. This includes all the fish he caught and sold during the year. He enters his total sales on line 1.

Line 3. Because Frank did not have any returns and allowances to report on line 2, line 3 is the same as line 1.

Line 5. Because Frank did not have any cost of goods sold to report on line 4, line 5 is the same as line 3.

Line 6. Frank's entry of $712 represents a $612 patronage dividend he received from his local cooperative and a $100 fuel tax credit he claimed on the 2000 Form 1040 he filed on March 1, 2001. The patronage dividend was reported to him on Form 1099-PATR, Taxable Distributions Received From Cooperatives.

Line 7. Frank's gross income from fishing includes his gross profit from line 5 and his other income from line 6.

Part II--Expenses

Frank enters his fishing expenses in Part II.

Line 10. Frank used his truck 65% for business during the year. He spent a total of $4,250 for gas, oil, insurance, tags, repairs, and upkeep. He can deduct $2,763 (65% × $4,250), the business portion of these expenses, on line 10.

Line 11. Frank paid his crew members total crew shares of $10,992 for the year.

Line 13. Frank enters $6,534 depreciation from Form 4562 (not shown).

Line 15. Frank's $3,291 deduction is for insurance on his business property (65% of his truck insurance is included on line 10). The deduction is only for premiums that give him coverage for the year.

Line 16b. Frank borrowed money to buy his fishing boat. The interest on this loan was $800 for the year.

Line 20b. His rent for his mooring space was $50 a month, or $600 for the year.

Line 21. He spent $3,600 for boat repairs and $993 for gear repairs for a total cost of $4,593.

Line 22. He spent $1,713 for boat supplies and $4,751 for bait and ice for a total cost of $6,464.

Line 23. Frank renewed his fishing license. He enters the $35 state fee on this line.

Line 27. Frank enters the total of his other fishing expenses on this line. These expenses are not included on lines 8-26. He lists the type and the amount of the expenses separately in Part V of page 2 (not shown) and carries the total entered on line 48 to line 27. His only entry on this line is the $6,367 he spent on fuel for his fishing boat.

Line 28. Frank adds all his expenses listed in Part II and enters the total on this line.

Line 29. He subtracts his total expenses, $42,439 (line 28) from his gross income from fishing, $61,000 (line 7). Frank has a tentative profit of $18,561.

Line 30. Frank did not use any part of his home for business, so he does not make an entry here.

Line 31. Frank has a net profit of $18,561 (line 29 minus line 30). He enters his net profit here, on line 12 of Form 1040, and on line 2, Section A of Schedule SE (Form 1040), not shown.

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