NASE News

Line-By-Line Guide To The Schedule C And Home Office Deduction Tax Forms

Washington, D.C., January 11, 2010 – Just in time for tax season, the nation’s 22 million micro-business owners have a book to help them successfully navigate Schedule C for reporting 2009 taxes and for mapping their tax strategies for the year ahead. Authored by two of the nation’s leading self-employment and tax experts, Schedule C: from A to Z de-mystifies federal tax codes and guidelines that specifically apply to sole proprietors to help filers minimize their tax liability and avoid filing mistakes that can trigger an audit by the IRS.

“As the backbone of the nation’s economy, it’s critical that the self-employed receive every deduction they are entitled to as the basis for reinvesting in their businesses, especially in today’s challenging environment,” says author Robert Hughes. “Through this book, owners can easily become more educated and informed about Schedule C - a key element of business success.”

Using a simple-to-follow tutorial approach, the book takes owners step-by-step through each line of the Schedule C form and includes information to educate fliers on IRS rules they many find complex. The book helps entrepreneurs better organize records throughout the year to yield more thorough record-keeping and better, more productive reporting.

In writing Schedule C: from A to Z, Hughes and co-author Keith Hall have drawn heavily from their vast experience in working with the self-employed, as well as more than 20 years as CPAs and micro-business owners. Hughes is president of the National Association for the Self-Employed (NASE) and Hall is Chief Operating Officer. Both have worked extensively with small-business owners and have witnessed the effects of various laws and regulations first-hand.

One of the keys to successful filing is knowing how to properly categorize expenses, since mistakes in this area can easily trigger an audit by the IRS, and tax rules on itemization are not always intuitive. The book flags reporting areas that often are misinterpreted by filers and offers tips to help identify all feasible and legal deductions.

Practical Tips for Avoiding Problems, Confusion
For each line and category of the Schedule C form, Hughes and Hall explain IRS interpretation, along with a checklist of what can and cannot be reported under each heading. Common misconceptions and pitfalls to avoid also are featured for each line. For example:

• The book advises close scrutiny of categories that on the surface may sound like catch-all reporting sections, such as line 18 – “Office Expense.” Despite wording that suggests otherwise, this category is not intended for the reporting of expenses pertaining to office supplies, furniture or rent, which are to be reported elsewhere on Schedule C. Instead, this category is for reporting a litany of miscellaneous items, from janitorial services and bottled water to maintenance service for plants. Expenses related to telephone answering services are to be reported here, but not those related to voice mail service (which are reported with telephone expenses under “Other Expenses”). Publications for a waiting room go under line 18, “Office Expense,” but if publications are for use by employees, those items must be reported separately under “Other Expenses.”
• Another section for common filing errors is one of the most frequently used by sole proprietors – “Travel, Meals and Entertainment” (line 24). The authors note that entrepreneurs can deduct 100 percent of travel expenses under “Travel” (line 24a), but expenses must meet all of four specific requirements, including the requirement of being away from home long enough to require rest, which basically means an overnight stay. Although filers report 100 percent of their expenses for meals and entertainment on line 24b, the actual deduction they can take for these costs is limited, so calculation is required to determine the amount that can be deducted. The book walks readers through how to do this math. 
• Schedule C is loaded with categories and terms for which the IRS has very distinct meaning, the book notes. For example, in IRS nomenclature, “Repairs and Maintenance” (line 21) are expenses that keep property in ordinary and efficient operating condition. On the other hand, “Improvements” add to the value of the property or prolong its useful life and are considered capital expenditures and added to the cost basis of the property. These expenses are reported on line 13, “Depreciation and Section 179 Expense Deduction.”

As an added bonus, the book also includes a line-by-line breakdown of Form 8829, commonly known as the home office deduction. Sixty percent of the NASE’s micro-business membership work from a home office, yet many fear the home office deduction as an audit trigger.

“The self-employed and owners of micro-businesses often don’t have the resources to hire staff or outside experts to help them figure out complex and confusing tax laws and regulations,” says Hall. “This guide is presented as an easy-to-digest tool that will help owners better understand tax rules and minimize their tax liability.”

For more information about Schedule C: from A to Z, visit www.NASE.org or call 800-649-6273. Order Schedule C: from A to Z on Amazon.com.