Can Schedule C Be That EZ?

Can Schedule C Really Be That "EZ"?

by Wayne M. Davies

Here's some *potentially* good news for self-employed
folks who file Schedule C to report their business income
and expenses to the IRS each year:

Starting with Year 2004, sole proprietors who qualify
can use Schedule C-EZ rather than Schedule C.

You qualify if you meet these criteria:
-- Your business expenses are not greater than $5,000
-- Your business has a profit
-- You have no inventory
-- You use the cash method of bookkeeping
-- You have only one business as a sole proprietor
-- You have no employees
-- You are not taking the home office deduction
-- You're not required to file Form 4562 (the form used to
report deprecation and/or the Section 179 deduction for
business equipment and other 'fixed assets')

The IRS estimates this rule change will allow
500,000 more sole proprietors to use Schedule C-EZ
in 2004, compared to 2003 when the threshold was $2,500
in business expenses.

Assuming you qualify, should you take advantage of
this new rule? Will it really make your tax life
that much easier?

See for yourself.

Go to the IRS website right now and take a look at
Schedule C vs. Schedule C-EZ. Here are the links:

Schedule C
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Schedule C-EZ
http://www.irs.gov/pub/irs-pdf/f1040sce.pdf

Do you notice how much shorter the EZ
form is? It has only eight lines. Schedule C has
forty-eight lines.

So, which form would you rather file? Obviously,
the one with only eight lines. And if you are not
taking a vehicle deduction (which gets reported on
lines 4-8), you can actually report all your business
activity on only *three* lines:

Line 1 -- Sales
Line 2 -- Expenses
Line 3 -- Profit (Line 1 minus Line 2)

Wow! That's got to be the easiest small
business tax form I've ever seen in my life!

You just add up your income, add up your expenses,
do one subtraction calculation, and presto, you
are done with Schedule C-EZ. Next form, please!

If you are trying to simplify your tax life,
this form is for you.

But here's something to think about:

Sure, there's something to be said for a 3-line
business tax form. But I'm here to warn you that
you might be doing yourself a disservice by
switching to Schedule C-EZ.

Here are my reasons:

1. If you are filing Schedule C-EZ, that means you
had no business equipment expense and no home
office deduction.

Is that really true? If so, fine.

But I urge you NOT to file Schedule C-EZ just to avoid
filing Form 4562 (the business equipment form)
and/or Form 8829 (the home office form). These are
two of the best tax breaks offered to the self-
employed. You may be missing out on thousands of
dollars in tax savings by omitting these two forms.

Even if you have to hire a professional (oh no!)
to do your return, the cost is usually well worth
it when the tax savings outweighs the tax prep fees.

2. From a business management standpoint, are you
filing Schedule C-EZ because you abhor doing any
type of detailed analysis of your business' income
and expense records?

The regular Schedule C forces you to perform one
of the best financial exercises every business
needs: expense categorization.

There are about twenty different expense categories
on Schedule C. Most successful businesses have at
least that many expense categories -- tracking your
expenses at this level of detail keeps your finger
on the pulse of your business.

If you think you can run a profitable business by
just lumping everything together into one huge
catch-all expense category, well, I think you are
taking a costly and potentially business-ending
shortcut.

You need to know where the money goes. Failure
to categorize expenses can be a symptom of
financial laziness -- and could be a sign that
your small business is only going to get
smaller and smaller. Before you know it,
you won't know how or why, but you will realize
that you are out of business and will be clueless
as to the cause of the failure.

Detailed expense categorization is the business
owner's first line of defense against business
failure.

So before you jump on the Schedule C-EZ bandwagon,
take a close look at your bookkeeping system
and see if you need to make some changes.

The long-term success of your business may depend
on it.

I challenge you to ask yourself this question:

Is the convenience of a 3-line tax form really worth
it? I think not.

About The Author:

Wayne M. Davies is author of three tax-slashing eBooks for small business owners and the self-employed:

The Tax Reduction Toolkit
http://www.YouSaveOnTaxes.com/toolkit

Incorporation Tax Secrets Revealed
http://www.YouSaveOnTaxes.com/secrets

How To Incorporate Yourself For Free
http://www.YouSaveOnTaxes.com/how-to-incorp

Wayne's eBooks are available separately, or at a discount as a 3-volume set:

The Ultimate Small Business Tax Reduction Guide
http://www.YouSaveOnTaxes.com/ultimate-guide

To receive a free copy of Wayne's 25-page Special Report,

"How To Instantly Double Your Deductions"

click here:

http://www.YouSaveOnTaxes.com

www.YouSaveOnTaxes.com

A Division of Wayne M. Davies Inc.

4660 W. Jefferson Blvd., Suite 220

Fort Wayne, IN 46804

Tel: (260) 459-3858 / Fax: (260) 459-0124

email: YouSaveOnTaxes@aol.com

http://www.YouSaveOnTaxes.com

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