| Are you a sole proprietor who files the shorter | | | | deduction. |
| Schedule C-EZ rather than the traditional (and longer) | | | | Is that really true? If so, fine. But I urge you NOT file |
| Schedule C? If so, please read on to find out why you | | | | Schedule C-EZ just to avoid filing Form 4562 (the |
| may be making a big mistake. First, a quick review of | | | | business equipment form) and/or Form 8829 (the |
| the qualifications for using Schedule C-EZ. You qualify | | | | home office form). These are two of the best tax |
| if you meet these criteria: | | | | breaks offered to the self-employed. You may be |
| - Your business expenses are less than $5,000 | | | | missing out on hundreds or even thousands of dollars |
| - Your business has a profit | | | | in tax savings by omitting these two forms. |
| - You have no inventory | | | | Even if you have to hire a professional to do your |
| - You use the cash method of bookkeeping | | | | return, the cost is usually well worth it when the tax |
| - You have only one business as a sole proprietor | | | | savings outweighs the tax prep fees. |
| - You have no employees | | | | 2. From a business management standpoint, are you |
| - You are not taking the home office deduction | | | | filing Schedule C-EZ because you abhor doing any |
| - You're not required to file Form 4562 (the form used | | | | type of detailed analysis of your business' income and |
| to report deprecation and/or the Section 179 deduction | | | | expense records? |
| for business equipment and other 'fixed assets') | | | | The regular Schedule C forces you to perform one of |
| Assuming you qualify, should you take advantage of | | | | the best financial exercises every business needs: |
| this shortcut? Will it really make your tax life that much | | | | expense categorization. |
| easier? | | | | There are about twenty different expense categories |
| Do you notice how much shorter the EZ form is? It | | | | on Schedule C. Most successful businesses have at |
| has only eight lines. Schedule C has forty-eight lines. | | | | least that many expense categories - tracking your |
| So, which form would you rather file? Obviously, the | | | | expenses at this level of detail keeps your finger on |
| one with only eight lines. And if you are not taking a | | | | the pulse of your business. |
| vehicle deduction (which gets reported on lines 4-8), | | | | If you think you can run a profitable business by just |
| you can actually report all your business activity on | | | | lumping everything together into one huge catch-all |
| only three lines: | | | | expense category, well, I think you are taking a costly |
| Line 1 - Sales | | | | and potentially business-ending shortcut. |
| Line 2 - Expenses | | | | You need to know where the money goes. Failure to |
| Line 3 - Profit (Line 1 minus Line 2) | | | | categorize expenses can be a symptom of financial |
| That's got to be the easiest small business tax form | | | | laziness - and could be a sign that your small business |
| I've ever seen! You just add up your income, add up | | | | is only going to get smaller and smaller. Before you |
| your expenses, do one subtraction calculation, and | | | | know it, you won't know how or why, but you will |
| presto, you are done with Schedule C-EZ. Next form, | | | | realize that you are out of business and will be clueless |
| please. | | | | as to the cause of the failure. |
| If you are trying to simplify your tax life, this form is for | | | | Detailed expense categorization is the business |
| you. | | | | owner's first line of defense against business failure. |
| But here's something to think about: | | | | So before you jump on the Schedule C-EZ |
| Sure, there's something to be said for a 3-line business | | | | bandwagon, take a close look at your bookkeeping |
| tax form. But I'm here to warn you that you might be | | | | system and see if you need to make some changes. |
| doing yourself a disservice by switching to Schedule | | | | The long-term success of your business may depend |
| C-EZ. | | | | on it. |
| Here are my reasons: | | | | I challenge you to ask yourself this question: Is the |
| 1. If you are filing Schedule C-EZ, that means you had | | | | convenience of a 3-line tax form really worth it? I think |
| no business equipment expense and no home office | | | | not. |