Schedule C (Form 1040): 2013 Tax Year Filing Checklist
2013 Year-Specific Context
Schedule C for 2013 introduced the simplified home office deduction method, allowing eligible taxpayers to claim $5 per square foot for up to 300 square feet of qualified business use space, with a maximum deduction of $1,500. This new option was established under Revenue Procedure 2013-13 and provides an alternative to the traditional actual expense method, which requires detailed record-keeping and depreciation calculations.
The standard mileage rate for business use of a vehicle was 56.5 cents per mile in 2013. No Economic Impact Payment reconciliation, Affordable Care Act individual shared responsibility penalties, or Tax Cuts and Jobs Act provisions applied to Schedule C filers for the 2013 tax year, as these programs were enacted in later years.
Mandatory Ten-Step Checklist
Step 1: Confirm Sole Proprietor Status
You must be operating as a sole proprietor, not as a partnership, S corporation, or C corporation. If you and your spouse both own the business equally and both materially participate, you may elect qualified joint venture status to file two separate Schedule C forms rather than a partnership return on Form 1065. File a separate Schedule C for each distinct business you operate.
A single-member limited liability company (LLC) that is disregarded as an entity separate from its owner for federal tax purposes also files Schedule C. Statutory employees who receive Form W-2 with box 13 checked may also file Schedule C for business expenses related to their employment.
Step 2: Gather Income Documentation
Collect all Forms 1099-MISC showing nonemployee compensation and other income, Forms 1099-NEC if you received any payments as a nonemployee, Forms 1099-K from payment settlement entities showing payment card and third-party network transactions, and Form W-2 if you are a statutory employee with income identified in box 13. Gather bank statements and accounting records showing all gross receipts for 2013.
Statutory employee income is reported from W-2 box 1, not from Form 1099-MISC. Include documentation of any refunds of state or federal gasoline or fuel tax you claimed as a credit or deduction in prior years, as these refunds must be included in income for 2013. Organize all income documentation by source and maintain complete records that show the dates and amounts received.
Step 3: Document Vehicle Expenses
Record total business miles driven, commuting miles between home and regular place of business, and other personal miles driven in 2013. Retain contemporaneous mileage logs showing dates, destinations, business purposes, and miles driven for each business trip. Keep all receipts for vehicle-related expenses, including gasoline, oil, repairs, insurance, registration, and license fees.
You may claim 56.5 cents per business mile using the standard mileage rate OR actual expenses for gasoline, oil, repairs, insurance, and license plates, but not both for the exact vehicle in the same year. You may switch methods for different cars or in other years, subject to certain restrictions. If using actual expenses and claiming depreciation or Section 179 expensing, you must complete and attach Form 4562. Commuting miles between home and your regular place of business are not deductible.
Step 4: Complete Part I—Income (Lines 1–7)
Enter gross receipts or sales on line 1, including all amounts received from your trade or business. Subtract returns and allowances on line 2 to calculate net receipts on line 3. If you maintain inventory at any time during the year, you must complete Part III (Cost of Goods Sold) first to calculate your cost of goods sold, which is entered on line 4.
Calculate gross profit by subtracting the cost of goods sold on line 4 from line 3, and join the result on line 5.
Add any other income on line 6, such as federal and state gasoline or fuel tax credit or refund received in 2013 for business use. Enter gross income on line 7 by adding lines 5 and 6. This amount represents your total business income before deducting expenses.
Step 5: Gather and Categorize All Expense Documentation
Collect receipts and documentation for all business expenses paid or incurred during 2013. Organize expenses by category including advertising, car and truck expenses, commissions and fees, contract labor, depreciation and Section 179 deduction, employee benefit programs, insurance other than health, mortgage interest paid to banks, legal and professional services, office expense, rent or lease of vehicles, machinery, equipment, and other business property, repairs and maintenance, supplies, taxes and licenses, travel, meals and entertainment, utilities, wages paid to employees, and other expenses not listed in specific categories.
Ensure all expenses are ordinary and necessary for your trade or business. Personal expenses cannot be deducted. Maintain a complete record, including dates, amounts, and business purpose, to ensure accurate documentation.
Step 6: Complete Part II—Expenses (Lines 8–27a)
Enter each expense category on its corresponding line in Part II. Line 13 is used to claim depreciation and Section 179 expensing deduction, which requires completion and attachment of Form 4562 if you are claiming either for property placed in service during 2013 or for listed property. Line 9 for car and truck expenses uses either 56.5 cents per mile multiplied by total business miles driven or itemized actual vehicle expenses.
Do NOT deduct depreciation, rent, or operating expenses on line 9 if you use the standard mileage rate, as these are already included in the rate. Meals and entertainment expenses reported on line 24b are generally only 50% deductible, so you must calculate the allowable deduction by multiplying total meals and entertainment expenses by 0.50. Add all expenses from lines 8 through 27a and enter the total on line 28. This represents your total ordinary and necessary business expenses before applying the home office deduction.
Step 7: Determine Home Office Deduction (Line 30)
Suppose you use part of your home exclusively and regularly for business as your principal place of business or as a place to meet or deal with patients, clients, or customers in the normal course of business. In that case, you may claim a home office deduction on line 30 only. Do not deduct home office expenses elsewhere on Schedule C. For 2013, you may elect the simplified method, which allows a deduction of $5 per square foot for up to 300 square feet of qualified business use space, with a maximum deduction of $1,500. Alternatively, you may use the actual expense method, requiring completion and attachment of Form 8829.
You cannot use both methods for the same home in 2013. The simplified method does not require the allocation of actual expenses, depreciation tracking, or depreciation recapture upon the sale of the house. Once you make your election by filing your return, the choice is irrevocable for that tax year, though you may change methods in subsequent years.
Step 8: Calculate Net Profit or Loss (Lines 29–31)
Subtract total expenses on line 28 from gross income on line 7 to calculate tentative profit or loss on line 29. Subtract the home office deduction on line 30, if applicable, to arrive at net profit or loss on line 31. If line 31 shows a net profit, enter this amount on Form 1040 line 12 as business income and also enter it on Schedule SE line 2 to calculate self-employment tax. If line 31 shows a net loss, enter the loss on Form 1040, line 12, to reduce your total income.
Indicate in box 32a if all investments are at risk, or check box 32b if some investments are not at risk, and attach Form 6198 (At-Risk Limitations) to calculate the deductible loss. Passive activity loss limitations may also apply if you did not materially participate in the business.
Step 9: Determine Material Participation and At-Risk Status (Lines G and 32)
On line G, confirm whether you materially participated in the business during 2013. You meet the material participation test if you worked more than 500 hours in the industry during the year, if your participation was substantially all the participation in the activity, if you participated more than 100 hours and at least as much as any other person, or if you meet any of four additional tests outlined in Publication 925 (Passive Activity and At-Risk Rules). If you answer “No” to material participation, passive activity loss limitations in Publication 925 apply, and losses may be limited or suspended.
On line 32, indicate whether all investment in this business is at risk (check box 32a) or whether some investment is risky (check box 32b). If you select box 32b, you must complete and attach Form 6198 to calculate the amount of loss allowed under at-risk limitations.
Step 10: Assemble, Sign, and File
Complete all required lines on Schedule C, ensuring accuracy of all calculations. Attach Schedule C to Form 1040 or Form 1040-NR; you cannot use Form 1040-EZ if you have business income requiring Schedule C. Attach Form 8829 (Expenses for Business Use of Your Home) if you are claiming actual home office expenses using the regular method rather than the simplified method. Attach Form 4562 (Depreciation and Amortization) if you are claiming depreciation, Section 179 expensing, or deductions for listed property, including vehicles placed in service during 2013.
Attach Form 6198 (At-Risk Limitations) if you checked box 32b, indicating some investment is not at risk. Sign and date your Form 1040 return. Include all schedules and required supporting forms in the proper order according to IRS assembly instructions for Form 1040 for tax year 2013. Retain copies of all schedules, forms, and supporting documentation for at least three years from the filing date.
Form-Specific Limitations for 2013 Schedule C
Nonresident aliens filing Form 1040-NR must report only income that is effectively connected with the conduct of a trade or business in the United States on Schedule C. Income not effectively connected is reported elsewhere on Form 1040-NR. They may be subject to 30% withholding or treaty rates. Passive activity loss limitations under Section 469 apply if you did not materially participate in the business, potentially limiting or suspending losses. Statutory employees identified by a checkmark in Form W-2 box 13 may file Schedule C to deduct business expenses. Still, they must report their W-2 income on line 1 of Schedule C and cannot deduct depreciation unless required to file Form 4562.
If your business incurred a loss, at-risk limitations may restrict the amount of loss you can deduct. You are generally at risk for cash, property you contributed, personally liable borrowed amounts, and borrowed amounts secured by unrelated property. You are not at risk for nonrecourse loans for which you are not personally liable, amounts protected against loss through guarantees or similar arrangements, or amounts borrowed from a person with an interest in the business or related to such a person.
Key 2013 Changes
The simplified method for deducting home office expenses was introduced for the tax year 2013 under Revenue Procedure 2013-13. This new optional method allows eligible taxpayers to claim $5 per square foot of home used for business, up to a maximum of 300 square feet, resulting in a maximum deduction of $1,500. The simplified method eliminates the need to complete Form 8829, allocate actual expenses between business and personal use, track depreciation on the business portion of the home, or recalculate depreciation upon sale of the house. Taxpayers may elect the simplified method or continue using the actual expense method, but cannot use both methods for the same home in the same tax year. The simplified method is available starting with the tax year and cannot be used for prior tax years.
For professional assistance with your 2013 Schedule C business income and expenses or any tax filing questions, contact our tax experts at (888) 260-9441.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
