• The Tax-Aide program does NOT prepare tax returns for business entities, such as partnerships, corporations, or LLCs. The program prepares only personal tax returns (Form 1040), including Schedule C, Profit or Loss from Business.
    • There is no limit for business income (overall limits relating to total AGI still apply), and all actual income must be reported.
      • It is a violation of U.S. tax law to include nonexistent income on a tax return, for example to increase the amount of the taxpayer’s Earned Income Credit.
    • Total expenses on any single Schedule C cannot exceed $50,000.
      • Any business expense that is out-of-scope makes the entire tax return out-of-scope.
      • It is a violation of U.S. tax law to under-report business expenses for the benefit of the taxpayer, for example to increase the amount of the taxpayer’s Earned Income Credit.
    • Multiple Schedule Cs are allowed - use one for each type of self-employment; do not combine different types of work.
  • For an activity of a taxpayer to qualify as a business, and be reported on Schedule C, the taxpayer’s primary purpose for engaging in the activity must be for income or profit, and s/he must be involved in the activity with continuity and regularity. For example, being a poll worker is not continuous or regular activity; such income does not go on Schedule C.
    • Activities that generate income and offsetting expenses but don’t meet the criteria of being for income or profit (say, coin collecting) are classified by the IRS as a hobby. Both hobby income, reported on Schedule 1 Line 8j, and any offsetting expenses (not allowed on Schedule A) are out-of-scope.
    • Taxpayers who receive small amounts of compensation for holding an appointed public office are not considered to be engaged in a “trade or business”. Similarly, someone receiving a one-time payment for being an executor or administrator of a will is not engaged in that trade or business, and should not report this income on Schedule C. Instead, such income should be reported on Schedule 1 Line 8z, as described in the section Other Income Without a Supporting IRS Form, page 69.
    • Note: Rental income, if in-scope, is reported on Schedule 1, Line 5 - Rental Real Estate and Royalties (see below, page 63), not on Schedule C.
  • The following make the return out-of-scope: a net loss on a Schedule C, or where office-in-the-home expenses are claimed (not even the simplified method is in-scope), or with accrual accounting, or with employees, or with contract labor, or which made payments that required the business to file any type of Form 1099, or where there were contributions to a SEP/SIMPLE retirement plan, or which was involved in the manufacture, distribution, and/or sale of controlled substances such as marijuana, or where the business was professional gambling, or involved bartering or cryptocurrency (virtual currency) transactions.
  • If the taxpayer has a net loss, it is not sufficient to simply exclude some expenses so that Schedule C shows zero income, or a small profit. You must determine whether what is being reported is a hobby, rather than a business; if so, that income, and the return, is out-of-scope. 
      • The factors used to determine whether a business activity is “not-for-profit” (which makes it out-of-scope) are listed in the “Not-for-Profit Activities” section of Chapter 1 of Pub 535, Business Expenses. 
  • NTTC’s “2022 Guidelines for Schedule C”, available at https://ta-nttc.tiny.us/Sch-C-Guidelines, includes detailed guidance on what is in-scope for Schedule C, and how to handle a wide variety of expenses; examples are provided. A review of this document is highly recommended if you are preparing a Schedule C.

Business Information for Schedule C

  • Go to the Schedule C page [Income > …]; after information is entered, this page is reached via Federal Section > Income > Schedule C > Profit or Loss From A Business > Edit > Basic Information About Your Business].
    • If a MFJ return, identify whether the business is for the taxpayer or the spouse.
      • If the taxpayer and spouse own the business 50/50, all information is entered on a single Schedule C.
        • Select either spouse as the person who the business belongs to.
        • On the Questions About Your Business page, check the box for Qualified Joint Venture. Then TaxSlayer splits Schedule C amounts between the two spouses, and the tax return contains two separate Schedule Cs when printed.
      • If ownership is something other than 50/50, income and expenses must be split and entered in two Schedule Cs, one for each spouse.
    • Don’t enter Name and Address information unless it is different from the Personal Information page.
  • Complete the Business Type information.
      • TaxSlayer has a nice search function for business codes – click “Click here for a list of Business Codes”.
      • Note: If you can’t find an appropriate code, use 812990. [The business code for drivers who worked for Uber, Lyft, and similar, is 485999; for those driving for Grubhub, DoorDash, and similar, the code is 492000.]
  • From the Schedule C menu page, for most returns, don’t go to the Schedule C - Questions About Your Business page!  Leave the defaults as they are.
    • Certain combinations of answers on this page have caused an e-file reject in the past.
    • Changing any of the default answers on this page make the return out-of-scope.

Schedule C Income Not on a 1099-NEC

  • For business income (incorrectly) reported on a 1099-MISC, enter the amount in TaxSlayer as if the amount had been in box 1 of a 1099-NEC, on the TaxSlayer page for 1099-NECs.
  • Business income not reported on a 1099-MISC or on a 1099-NEC form is added to a Schedule C by going to the Schedule C - Income page [Income > Schedule C > Income].
    • On the first line, enter the total amount of all income not on a Form 1099-NEC or 1099-MISC. If taxpayer records don’t include any income from cash or check payments, ask if there was any such income.
    • Note:  Don’t enter anything in the fourth line, “Other income”.  It’s specifically for rare out-of-scope types of income which few of us have ever heard of. 
  • If taxpayer receives a Form 1099-K, Payment Card and Third Party Network Transactions,  for self-employment income (which if for rental income of 15 days or more is out-of-scope), the gross amount in Box 1a of the 1099-K should be included as income on Schedule C. Commissions and fees that affect the net amount paid to the taxpayer should be reported on the Schedule C – Expenses page (from the Schedule C page, select “General Expenses).
    • Don’t enter an amount from box 1b of a Form 1099-K; that amount is included in box 1a of that form.
    • Note: Starting with tax year 2025, Form 1099-K is required to be issued when total gross payments exceed $2,500; for 2024, the threshold is $5,000; for 2023 it remained $20,000 and at least 200 transactions. Discuss with the taxpayer whether all or part of the reported income is business related and needs to go on Schedule C; or if all or part is a capital gain (Schedule D); or if it was all personal (like your roommate sending their share of rent to you electronically)—this isn’t income and shouldn’t be reported.
  • According to the IRS, someone who “regularly uses online applications to transfer money to other individuals … for splitting the costs of meals, gifts, allowances, etc.” should not receive a Form 1099-K. If they do, the IRS recommends they try to get the form corrected, and if that isn’t possible, to attach an explanation to the tax return [Miscellaneous Forms > Explanations > Preparer Notes] as to why the amount on Form 1099-K is not being reported as income.
    • New in 2025:  Schedule 1 has a new unnumbered line at the top for an amount on a 1099-K that was included in error or for personal items sold at a loss.  TaxSlayer should have a place to enter this.
  • For more details on Form 1099-K, see these resources:

Schedule C – Out-of-Scope Expenses

  • On the Schedule C menu page, the following types of expenses are out-of-scope:
    • Depreciation
    • Expenses for Business Use of Your Home

Schedule C – Cost of Goods Sold 

  • Cash-basis taxpayers who purchase items for resale, and/or materials and supplies that go into items that are sold, are in-scope as long as they expense 100% of their purchases of goods at the time that they pay for them.
    • If the taxpayer filed a Schedule C last year that included an ending inventory dollar amount, the current tax return is out-of-scope if there was any activity in that business in the current tax year.
  • Do not use the Schedule C - Cost of Goods Sold page. 
    • The cost of items purchased for resale, and raw materials, should be entered as Other Expenses.

Schedule C – General Expenses

  • Part II of Schedule C is a list of specific expense categories that the IRS wants information on. These may or may not cover the majority of expenses of a typical business, but expenses in these categories should be entered on the Schedule C – Expenses page [Income > Schedule C > General Expenses].
    • Of these, the following are out-of-scope: 
      • Contract labor
      • Depletion
      • Employee benefit programs
      • Mortgage interest
      • Pension and profit-sharing
      • Utilities
    • The following expenses have limitations:
      • Rent or lease of equipment – this can include a car rental or lease, but only if for 30 days or less; longer-term car rentals are out-of-scope.
      • For tax years 2021 and 2022, business meals may be claimed at 100% of cost if it is food or beverage from a restaurant. By contrast, the food or beverage is from a grocery or convenience store, the deduction was still limited to 50%.
  • Entertainment expenses are no longer deductible on the federal Schedule C. 
        • Note for CA returns: California does not conform to the elimination of entertainment as a business expense. As of the publication date of this manual, TaxSlayer does not separate meal expenses from entertainment expenses, on the Schedule C – Expenses page, you must adjust manually – see the section Additional Business Expenses, page 109.
  • Expenses that don’t fit into one of these categories, are not specifically out-of-scope (see the list in the section immediately above), and are not car and truck expenses (see the next section), are entered in TaxSlayer as “other expenses” – see the section Schedule C – Other Expenses, page 60.

Schedule C – Car and Truck Expenses 

  • In the Tax-Aide program, only mileage, personal property taxes, and vehicle loan interest can be claimed as vehicle-related expenses, except for rideshare drivers, as discussed below. Actual operating expenses, such as fuel, maintenance and repairs, and depreciation are out-of-scope. 
    • For 2024, the rate is $0.67 per mile.
    • For 2023, the rate was $0.655 per mile.
  • For 2022, the rate was $0.585 per mile from 1/1/2022 through 6/30/2022, and $0.625 per mile from 7/1/2022 through 12/31/2022.
    • It’s critical that you and the taxpayer understand which work-related mileage is not deductible (commute miles) and which is (business miles). Within the taxpayer’s metropolitan area, miles driven between home and a regular or main job site are commute miles; miles driven between home and a second job location are similarly commute miles; and miles driven to a temporary work location when the taxpayer doesn’t have a regular or main job at another location are also commute miles. That means that business miles are the following, as described in Pub 463, Travel, Entertainment, Gift, and Car Expenses Chapter 4:
      • If the taxpayer had one or more regular places of work, then any travel between home and a temporary workplace is considered business miles, whether that temporary location was local or not.
      • Travel from one place of work to another place of work is always business miles.
      • If the taxpayer had no regular place of work but ordinarily worked in the metropolitan area where they lived, they can deduct daily transportation costs (miles, tolls, etc.) between home and a temporary work site outside that metropolitan area. [A temporary work location is one where work is expected to last less than one year.]
    • If a taxpayer’s home is their principal place of business, then all mileage driven to work locations is business mileage; however, to establish the home as the principal place of business, the taxpayer should claim a home office, which is out-of-scope. 
      • In such case, the taxpayer should be told of the option of using a paid preparer who can claim the home office deduction and all mileage. 
    • In addition to claiming mileage, all drivers may claim the following expenses, as applicable:
      • A prorated portion of the CA Personal Property Tax (VLF). For example, if the VLF is $200 and business miles are 40% of total miles, then $80 could be claimed. 
        • Enter under Schedule C Expenses (select “General Expenses” on the Schedule C menu page) on the “Taxes and licenses” line.
        • The Schedule A deduction for VLF must be reduced by the amount claimed on Schedule C.
      • A prorated portion of interest expense for a loan used to purchase the vehicle.
        • Enter under Schedule C Expenses (select “General Expenses” on the Schedule C menu page) on the “Other Interest” line.
        • Note that monthly payments consist of principal plus interest; only the interest is deductible.
        • Interest on a leased vehicle is out-of-scope.
  • For drivers of rideshare services such as Uber and Lyft, special rules apply.  
      • All miles driven with a customer, or while available and waiting to be assigned a customer, or while driving to meet an assigned customer, are business miles (the mileage total given by the rideshare company usually doesn’t include the latter amount, so the taxpayer must keep track).
      • The following may be claimed in addition to standard mileage, prorated VLF, and prorated interest expense; enter these as “Other Expenses”:
        • If the taxpayer pays for rideshare coverage through a rider [special provision] on their vehicle insurance, that is fully deductible.
        • If the taxpayer pays specifically for a roadside assistance plan, a prorated portion of that expense can be claimed. 
        • A prorated portion of car washes and car detailing is deductible.
        • The cost of snacks and water offered to passengers is fully deductible.
  • Information about vehicle expenses is entered on the Schedule C Car and Truck Expenses page [Income > Schedule C > Car and Truck Expenses]; see Page D-30 of  Pub 4012. 

Schedule C – Other Expenses 

  • Other Expenses are entered individually on the Schedule C Other Expenses page [Income > Schedule C > Other Expenses]. Some relevant rules: 
    • Landline telephone service: How landline costs are handled depends on what type of service is offered:
      • If the service offered is a basic (local) package plus additional charges for long-distance phone calls, then the cost of the basic telephone service, including taxes, is considered 100% personal, so no portion can be deducted on Schedule C. The cost of itemized long distance phone calls that are business-related, however, can be deducted.
      • If the service offered includes unlimited long-distance phone calls, then the taxpayer may deduct the prorated portion of the total phone cost that is business-related. 
        • The taxpayer must be prepared to provide written supporting information to the IRS, if challenged. That could be a log of business or personal phone calls made, say. Without such documentation, the IRS will disallow all costs.
      • The cost for an additional phone line used only for business purposes is fully deductible.
    • Mobile (cell) phone: Expenses allowed (deductible) depend on the type of mobile phone service:
      • For mobile phones that are not “smartphones” (that is, they don’t have Internet capabilities, and so don’t include a data package):
        • If the taxpayer has no landline, then mobile phone costs are treated just as if the mobile phone was a landline, with allowed (deductible) costs depending on whether the phone service includes unlimited phone calls – see above for specifics.
        • If the taxpayer has a landline, then all the costs of the mobile phone are potentially deductible – subtract allocated and/or itemized amounts that are used for personal purposes.
      • For mobile phones that are “smartphones” (that is, they do have Internet capabilities, and so do include a data package), all costs should be pro-rated (personal versus business-related) to determine what amount can be claimed as a business expense on Schedule C.
    • Internet and computer expenses: A percentage of Internet and recurring computer-related expenses, such as subscription software, can be deducted, based on business use versus personal use.
    • Equipment: The purchase of equipment, such as a computer, printer, or video camera, is out-of-scope if the cost of the item exceeds $2,500 (as is the return itself).
      • If the cost of a capital item was under $2,501, including sales tax and shipping costs, taxpayers using the Tax-Aide program may expense this capital item provided that a statement is included with the return that the taxpayer has elected to do so.
        • Enter the statement on an Election Explanation page [Miscellaneous Forms > Explanations > Elections Explanations] with the title “Section 1.263(a)-1(f) de minimis safe harbor”; the note itself should state (on the first line) the taxpayer's name, address, and SSN or ITIN, plus (starting on the second line) “I’m making a de minimis safe harbor election under §1.263(a)-1(f) for equipment purchase of $[amount].”
      • If the equipment was for both business and personal use, the taxpayer must estimate the percentage of each, on average, over the depreciable life of the equipment (five years), and use that estimate to reduce the amount claimed as a business expense.
    • Education expenses: Any educational expense related to a legal requirement to keep the taxpayer’s present job, salary, or status, or to maintain or improve job skills for an existing business, is allowable. Transportation, travel, and other necessary expenses, including books, are allowable. 
    • Business use of the home: No expenses (or allocation of expenses) are allowed for business use of the home: rent, utilities, homeowner or renter insurance, etc. 
    • Fines and penalties cannot be expensed.
    • Casualty losses are out-of-scope; see the section Schedule A - Casualty and Theft Losses – out-of-scope (Line 15) on page 86 for details, including screening to determine if there is any benefit to a taxpayer if they use a paid preparer.
  • Resources:  See Pub 535, Business Expenses Chapter 11 for more information on allowable expenses.

Schedule C – Final Step 

  • After all income and expenses have been entered for all Schedule Cs, then from the Income menu, create a PDF (“print”) to check that the net profit(s) are what was expected. (Normally the taxpayer will have calculated the net profit, or at least totaled income and expenses.) 

Health Insurance Costs as a Business Expense

  • Health insurance premiums paid by the taxpayer covering the taxpayer, spouse, and/or a child under the age of 27, including LTC premiums, are allowable as an expense for the self-employed. While such expenses are usually entered on the Schedule C – Expenses page (click “General Expenses” from the Schedule C menu), these costs won’t show on the printed Schedule C. Instead, such expenses go on Schedule 1 Line 17 (limited by the Schedule C profit) and Form 7206; any excess automatically flows to Schedule A medical expenses.

Notary Fees

  • Income from notary fees, and related expenses, are reported on Schedule C in the normal manner.
  • Notary fees are exempt from self-employment tax: 
    • Go to the Schedule SE Self-Employment Tax page [Federal Section > Other Taxes > Self-Employment Tax; not available via the search box] and select the correct taxpayer, if a MFJ return.
    • Enter the net profit in the box “Enter Exempt Notary Income” (the second box on the page where a dollar figure can be entered).
    • Click “Continue”.

Taxable Distribution Received from Cooperatives 

  • Form 1099-PATR, “Taxable Distribution Received from Cooperatives”, isn’t entered in TaxSlayer if the distribution is a rebate/refund based on purchases made for personal use made by the taxpayer.
  • If Form 1099-PATR was issued as a rebate/refund of purchases made for a business (such as food that was resold) which affects Schedule C net income, then the entire return is out-of-scope.

Created with the Personal Edition of HelpNDoc: Create help files for the Qt Help Framework