How to Prepare Part II of Schedule C

Do you need help reporting expenses on your Schedule C? Are you wondering whether you've accurately captured all deductible business expenses for your sole proprietorship? Then this article is for you.

Preparing Schedule C is an integral part of any Sole Proprietor's personal income tax return. And Part II is where you get to report all your expenses. What could be more important than that?

Here is the list of expenses that are shown in Part II, Lines 8-27: 8-Advertising; 9-Car and truck expenses; 10-Commission and fees; 11-Contract labor; 12-Depletion; 13-Depreciation and Section 179 expense; 14-Employee benefit programs; 15-Insurance; 16-Interest; 17-Legal and professional services; 18-Office expense; 19-Pension and profit-sharing plans; 20-Rent or lease; 21-Repairs and maintenance; 22-Supplies; 23-Taxes and licenses; 24a-Travel; 24b-Meals and entertainmen;t 25-Utilities; 26-Wages.

Please note that there are two major expenses that are not included in Part II: 1-Cost of Goods Sold. If you sell a product, Part II does not report the Cost of Goods Sold, which is likely to be your largest expense. But do not despair: Cost of Goods Sold is reported in Part I of Schedule C on Line 4. 2-Business Use of Home. That is reported on Line 30, where you report the amount of your home office expense as calculated on Form 8829.

Also note that even when you include Cost of Goods Sold and Business Use of Home, Schedule C only provides about 25 specific expense categories for your business. What about all the other perfectly legal expenses you incurred that don't happen to be listed on Line 4, Lines 8-26, or Line 30? That's where Line 27, "Other expenses", comes into play. This is where you put the total of all other expenses that have not been specifically identified on the form. The amount on Line 27 comes from Part V, which gives you space to list up to nine other categories. And what if you have more than nine? No problem - you simply attach a statement labeled "Schedule C, Part V, Line 48 expenses" and list as many as you like on that statement. Then carry the total of these expenses from the attached statement to the last line on Part V, which should have the words "See attached statement" written on it.

Examples of "Other expenses" that many business have include things like internet service provider, web hosting service, telephone, postage and printing. There are many other miscellaneous expenses that your business may have, so be sure to capture them all and list them in Part V.

Proper reporting of business expenses is the key to paying the least amount of tax allowed by law, and not a penny more. So be sure to pay special attention to this part of your Schedule C.

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