How to do Schedule C?
The IRS tax form Schedule C is divided into the following sections.
Your name and social security number make up the heading of the form. Add the type of principal business or professional activity and include the product or service on line A. Remember if you owned more than one business, you must complete a separate Schedule C for each business.
Enter a business code for your business on line B. A listing of the business codes can be found on pages C-7 through C-9 of the instructions for Schedule C. Your business name and addresses go on lines C and E. If you conducted the business from your home located at the address on Form 1040, you do not have to complete this line.
Employer Identification Number (EIN)
The Employer Identification Number (EIN) is entered on line D. If you do not have EIN, leave line D blank. Do not enter your social security number on line D. you must obtain an EIN if you:
If you do not have an EIN for your business, you can obtain one by sending in Form SS-4, Application for Employer Identification Number, to the IRS. You can also call the phone number in the instructions for Form SS-4 to obtain your EIN.
Accounting method used
You are also requested to indicate your accounting method (line F). The accounting method you use must accurately reflect your income. The cash method and the accrual method are the most common methods of accounting. You can also use a hybrid method. If you keep an inventory, you must use the accrual method for sales and purchases but you may still use the cash method for operating expenses.
With the cash method, you report income when you receive it. You deduct expenses when they are paid. (Credit card purchases must be reported in the year they are charged even if you pay the charge for the expense in a later year.)
In the accrual method, the income is reported in the year they are incurred even if they are not paid until a later year. The hybrid method is a combination of both the cash method and the accrual method. The most common hybrid method allows you to claim income when received (as in the cash method) and expenses (and inventory) when accrued as in the accrual method).