Business owner taxes: Annual payments

- [Instructor] The primary tax form for business owners is the schedule C. Let's take a look at it. Now for business owners, when you're filing your personal taxes of course you're going to have to file the usual 1040, et cetera, but schedule Cs help the IRS determine what the profit and loss from the business is. Now bear in mind, this will only be used if you're a sole proprietor or if you have an LLC or something similar. If you have a corporate form of organization, that is something like a C Corp, then you're typically going to have to file a form 1120. This is similar to a schedule C, but it's for corporations and LLCs that elect to be taxed as corporations. For bigger businesses, that's particularly relevant. For smaller businesses, there's a good chance that you're probably not going to be a C Corp. It's simply a more expensive form of organization these days. Now, on the schedule C we have all of the usual information that you'd expect. We're looking for the name of the proprietor, the profession or business, the business name, social security number, and employee identification number, et cetera. No surprises there. It's when we start drilling down that you're really going to need to be more careful about the information that you're giving to the IRS. So first of all, as part of your annual filings you're going to have to tell the IRS your gross sales and receipts. That goes into line one here under Part One in Income. From there, you're going to tell them returns and allowances. So the total amount you take in in sales less allowances gives you your net sales, if you will. From there, you're going to take out your cost of goods sold. This will come from line 42 down below. So if we scroll down to line 42, that's on the next page, you're going to determine your cost of goods sold based on your cost of labor, the cost of inventory, any materials and supplies you use, and other factors for the business, other costs that you might face. So that'll let you determine your cost of goods sold. Once you've got that, you'll then determine your gross profit in line five. And then you'll take into account any other income you receive. That's less common. So most of the time, line five, your gross profit, will match line seven, your gross income. From here, you're going to go through and enter expenses that the business faces. You can think about these as S, G, and E expenses, selling, general, and administrative expenses if you will. This is going to include things like advertising, use of company vehicles, any commissions and fees you pay, any taxes that you might pay associated with the business, repairs or maintenance to business equipment, any office expenses you have, et cetera. Notice you've got a variety of different categories here. You've got to go through and ensure that all of your expenses are in one of these categories. If they're not, and you can't defend why a particular expense belongs in that category, then you really can't claim it. Otherwise you risk opening yourself up to problems if the IRS audits you. So it's something to be aware of. If you're interested in learning more about how you can categorize expenses effectively and quickly, I recommend my course. This'll help you to go through and categorize your expenses based on the different classes of expenses that you face for your particular type of business. Once you've categorized all of your expenses, you're going to add them all up in line 28. From there in line 29, you'll determine your tentative profit or loss. So you're taking your gross income less essentially what are your overhead expenses that you've computed in lines eight through 27B. From there, you'll then determine your net profit and loss and you'll report this in the rest of your tax filings. At that point, you should be all set. You have all of the information that the IRS wants to see. Now you're ready to prepare your own schedule C or check one that your accountant prepares on your behalf.