Schedule C Form 1040 (2013): Profit or Loss From Business
Schedule C (Form 1040) reports net profit or loss from a self-employment business operated as a sole proprietor for the 2013 tax year. This individual income tax return schedule captures all business income and deductible expenses from sole proprietorship activities. For 2013, the simplified method for home office deduction allows filers to use a fixed rate per square foot instead of calculating actual expenses, reducing the documentation burden for qualifying taxpayers claiming business use of their home.
The Schedule C form integrates with Form 1040 to report self-employment income on line 12. Statutory employees who receive Form W-2 with the statutory employee box checked in box 13 also use Schedule C to report income and related business expenses. The form requires accurate documentation of all income sources and ordinary business expenses incurred during the 2013 tax year.
Filing Requirements and Steps
Complete Header Information
Enter the proprietor's name and Social Security number, ensuring they match the information on Form 1040 filed for the 2013 tax year. Confirm the business principal activity code from the Internal Revenue Service list in the 2013 Schedule C instructions and enter the appropriate code on line B. The business name, if different from the proprietor's name, should be entered on line C; the employer identification number (EIN) appears on line D if applicable.
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.
Select Accounting Method
Check the accounting method (cash, accrual, or other) used during the 2013 tax year on line F. If the accounting method changed during 2013, attach a statement explaining the change and its effective date, as per the 2013 guidance from the Department of the Treasury. Most sole proprietors use the cash method, reporting income when received and expenses when paid.
Report Gross Receipts and Sales
Report gross receipts or sales on line 1 for all business activities during 2013. If income is reported on Form W-2 with the statutory employee box checked in box 13, mark the box next to line 1 on Schedule C. Statutory employees do not owe self-employment tax on this income because the employer has already withheld Social Security and Medicare taxes from these earnings; therefore, this income is not reported on Schedule SE.
Returns and allowances reduce gross receipts on line 2. Line 3 shows net receipts after subtracting returns and allowances from line 1. This calculation establishes the baseline for determining gross income from business operations.
Determine Material Participation Status
Answer line G regarding material participation in the business during 2013 using the seven-test framework under Treasury Regulations. Material participation determines whether the activity is passive under Internal Revenue Code Section 469. If the answer is "No" (not materially participating), the activity is considered passive, and any loss may be subject to passive activity loss limitations, requiring the completion of Form 8582.
The material participation tests include participation exceeding 500 hours, participation constituting substantially all activity, participation exceeding 100 hours with no other person participating more, significant participation activities totaling over 500 hours, material participation in five of the prior ten years, material participation in a personal service activity for three previous years, and regular, continuous, substantial participation exceeding 100 hours. Consult the 2013 instructions for passive activity loss limitations before entering any loss on Form 1040 if material participation cannot be established.
Verify Form 1099 Compliance
Answer line I regarding Form 1099-MISC payment obligations for 2013. If the answer is "Yes" and you made payments to contractors or other service providers exceeding $600 aggregate during the year, verify line J status confirming that required IRS forms will be filed by the filing deadline. The 2013 General Instructions for Certain Information Returns identifies reportable payments and filing dates.
Calculate Cost of Goods Sold
Calculate Cost of Goods Sold using Part III if operating an inventory-based business. For 2013 filers, confirm that the opening inventory on line 35 matches the prior year's ending inventory, or attach an explanation as per the instructions on line 34. Lines 36 through 39 capture purchases, labor costs, materials and supplies, and other costs. Line 41 shows ending inventory; line 42 calculates Cost of Goods Sold by subtracting ending inventory from total costs.
The inventory valuation method selected on line 33 (cost, lower of cost or market, or other) must remain consistent unless a formal accounting method change is filed with the appropriate authorities. Any change in determining quantities, fees, or valuations between the opening and closing inventories must be accompanied by an attached explanation, as per the requirements outlined in line 34.
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.
Claim Home Office Deduction
Claim home office expense on line 30 using either the actual expense method or the 2013 simplified method introduced under Revenue Procedure 2013-13. Taxpayers using the actual expense method must attach Form 8829 and calculate allowable expenses based on the business use percentage of the home. Taxpayers electing the simplified method compute the deduction using a prescribed rate of $5 per square foot of the portion of the house used for business, with a maximum of 300 square feet (maximum deduction of $1,500 per year).
The simplified method requires no Form 8829 attachment and significantly reduces record-keeping requirements. Eligible taxpayers multiply qualifying square footage by $5 and enter the result directly on line 30. This option, introduced for tax year 2013, provides qualifying taxpayers claiming partial home use with reduced complexity in calculating the deduction.
Document Vehicle Expenses
Complete Part IV vehicle information if claiming car or truck expenses on line 9 and not required to file Form 4562 for depreciation reporting. Document business miles, commuting miles, and personal use availability for the 2013 tax year per contemporaneous records. Line 43 requires the date the vehicle was placed in service for business purposes; lines 44a through 44c capture total mileage allocation.
Lines 45 and 46 address vehicle availability for personal use during off-duty hours and whether another vehicle is available for personal use. Line 47a asks whether written evidence supports the deduction; line 47b confirms whether the evidence is written. The 2013 instructions emphasize that contemporaneous records (logs, receipts, mileage statements) must support the business use percentage claimed for line 9 deduction purposes.
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.
Calculate Net Profit or Loss
Enter net profit or loss on line 31 after completing all income and expense calculations. Transfer this amount to Form 1040, line 12 (or Form 1040NR, line 13 for nonresident aliens filing requirements). Line 31 also transfers to Schedule SE, line 2, for self-employment tax calculation unless the statutory employee box was checked on line 1.
If line 31 shows a net loss and some investment is not at risk, complete line 32b and attach Form 6198, as per the 2013 at-risk rules under Internal Revenue Code Section 465. Form 6198 calculates the allowable loss when the taxpayer has amounts invested in the activity for which they are not at risk. This is separate from passive activity loss limitations, which are addressed through Form 8582 when material participation cannot be established.
Year-Specific Updates for 2013
Simplified Home Office Deduction Introduction
The simplified method for home office deduction became available for tax year 2013, as outlined in Revenue Procedure 2013-13, effective for taxable years beginning on or after January 1, 2013. Eligible filers can compute the deduction at $5 per square foot, without the need for Form 8829 attachment, capping the maximum at 300 square feet for a maximum annual deduction of $1,500. This option provides substantial record-keeping relief compared to the actual expense method, which requires a detailed allocation of expenses such as mortgage interest, utilities, insurance, repairs, and depreciation.
Statutory Employee Reporting Clarification
The statutory employee checkbox located in box 13 of Form W-2 (not line 2d) affects Schedule C filing for 2013. When this box is checked, it indicates that the employer has withheld Social Security and Medicare taxes (FICA taxes) from the employee's wages. Because these payroll taxes have already been withheld, the statutory employee does not owe self-employment tax on this income and does not report it on Schedule SE. The income is reported on Schedule C line 1 with the box checked to indicate statutory employee status.
Vehicle Documentation Standards
Part IV vehicle documentation requirements emphasize the written evidence standard for 2013 filing compliance. Instructions specify that contemporaneous records must support the business use percentage claimed on line 9 deduction. Acceptable documentation includes detailed mileage logs, fuel receipts, maintenance records, and written statements documenting the business purpose for each trip. The business uses the percentage derived from these records to limit the allowable deduction for vehicle expenses directly.
Passive Activity and At-Risk Limitations
The material participation test on line G determines whether the business activity is passive under Internal Revenue Code Section 469 for the 2013 tax year. Filers answering "No" must reference the specific seven participation tests in the 2013 instructions to determine whether Form 8582 (Passive Activity Loss Limitations) is required. Form 6198 addresses a different limitation system: at-risk limitations under Internal Revenue Code Section 465, which apply when line 32b is checked, indicating some investment is not at risk.
Attachment and Assembly Requirements
Attach Schedule C to Form 1040, Form 1040NR (nonresident aliens), or Form 1041 (estates and trusts filing income tax returns). Partnerships file Form 1065 instead of Schedule C. Include Form 8829 if claiming actual home office expenses using the regular method; omit Form 8829 if using the 2013 simplified method. Attach Form 4562 if claiming depreciation or Section 179 expense deduction on assets placed in service during 2013 or reporting listed property.
Attach Form 6198 if a loss is entered on line 31 and line 32b is checked, indicating that the at-risk limitation applies. Attach Form 8582 if the activity is passive (line G answered "No") and generates a loss requiring passive activity loss limitation calculation. Attach an explanation if the inventory valuation method changed during 2013, per line 34 instructions, or if the opening inventory differs from the prior year's closing inventory amount.
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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.
