Schedule C Preparation: Sole Proprietor Income, Expenses, and Depreciation

About the course

Schedule C looks straightforward. The exposure sits in the categorization decisions the form does not display: what counts as gross receipts, what qualifies as cost of goods sold, which expense line each item belongs on under §162, whether §280A allows the home office deduction as claimed, whether the vehicle deduction was computed under the actual-expense or standard-mileage method the client can actually substantiate, whether the activity qualifies as a trade or business under §183 rather than a hobby, and whether the QBI deduction under §199A flows through as computed. Each decision compounds. A misclassified expense on line 22 changes the SE tax on Schedule SE and the §199A deduction downstream.

This course covers Schedule C line by line, with the categorization criteria the preparer applies at each entry. Coverage includes gross receipts and returns, COGS and inventory methods, expense classification under §162, home office under §280A, depreciation under §168 and §179 including bonus depreciation, vehicle expenses under both methods, and the flow-through to Schedule SE self-employment tax and the §199A qualified business income deduction. The course addresses the common audit issues: hobby loss analysis under §183, worker classification, and the §274 substantiation requirements for travel, meals, and vehicle expenses.

The course closes with the recordkeeping practices that support Schedule C positions under IRS review, and the workpapers a preparer maintains to substantiate categorization decisions if the return is examined. Three hours of Federal Tax credit.

Learning objectives

By the end of this course, participants will be able to:

1. Identify the components of gross receipts on Schedule C and distinguish gross receipts from other income items reported elsewhere on Form 1040.
2. Recognize the ordinary and necessary business expense standard under IRC §162 and identify the expense categorization decisions that determine correct line placement.
3. Identify the home office deduction requirements under IRC §280A, including the exclusive-use test and the two computation methods.
4. Distinguish between the actual-expense and standard-mileage methods for vehicle expenses and recognize the substantiation requirements for each under §274.
5. Recognize the interaction between Schedule C net profit, Schedule SE self-employment tax, and the qualified business income deduction under §199A.
6. Identify the hobby loss factors under IRC §183 and the substantiation practices required to demonstrate a trade or business.

Syllabus

1. SECTION 01The categorization frame

   Why Schedule C decisions cascade, how a misclassification on the form changes SE tax and §199A, and where the preparer's substantiation obligation attaches.

2. SECTION 02Gross receipts and cost of goods sold

   What counts as gross receipts, returns and allowances, and COGS computation including inventory methods for businesses that carry inventory.

3. SECTION 03Ordinary and necessary business expenses under §162

   Line-by-line categorization criteria for the expense sections of Schedule C, and the classification decisions that determine correct placement.

4. SECTION 04Home office and vehicle expenses

   §280A home office rules including exclusive-use requirements and the two computation methods; vehicle expenses under both actual-expense and standard-mileage methods, with the §274 substantiation requirements.

5. SECTION 05Depreciation and §179

   Depreciation under IRC §168, the §179 election and its limits, bonus depreciation, and how the depreciation choices interact with §199A downstream.

6. SECTION 06Schedule SE and §199A flow-through

   Self-employment tax computation from Schedule C net profit, and the qualified business income deduction interaction at the individual return level.

7. SECTION 07Audit issues and substantiation

   Hobby loss analysis under §183, worker classification, §274 substantiation for travel and meals, and the recordkeeping practices that support Schedule C positions under review.

Instructor

Jennifer Harris Smith, JD, CPA. Attorney (Texas). CPA (Texas). Member of Texas Bar College. Full bio →