Before we even get started, print this. And bookmark this. The first link is this year's Schedule C. This post will be a lot easier to follow if you have that in front of you. The second link is the instructions for filling out the Schedule C. It's 11 pages, so you can print it if you'd like, but I personally wouldn't bother wasting the paper. But then again, I've done this lots of times before... Up to you ...
Also - I am NOT a tax accountant. Don't take my word for it. That's why I linked you to the instructions, so you can see for yourself where I'm getting my information. Be sure to read the instructions and interpret them for yourself.
Now, we're just going to start at the top and work our way down. Grab a pencil and let's get to it!
This is the top of your Schedule C. I'd like to think that the majority of this is self-explanatory.
- Line A (Principal business or profession, including product or service (see instructions)): Give the general field or activity and the type of product or service. I will put "Online Retail Sales" or something like that.
- Line B (Enter code from instructions): You'll find these codes on pages 9-11 of the instructions. On page 11, find the section called "Retail Trade." In the second column from the left, toward the bottom, you'll see "Nonstore retailers." We are code number 454112 (Electronic Auctions - if you do auctions) or 454111 (Electronic Shopping - if you do fixed price store listings).
- Line C (Business Name): I think you can handle this one. This will be your store name. If you don't have an actual store name, then just leave this line blank.
- Line D (Employer ID number): Because we don't have employees, we shouldn't need this. If you put anything in your Commissions or Wages Paid section, it will probably require you to have an EIN in order to file electronically. You'll have to Google how to do that. I did it last year, and it wasn't complicated, but I don't remember now how I found that.
- Line E (Business Address): ummm.....
- Line F (Accounting Method): 99.9% of the time, this will be cash. That just means that you count your income and expenses when they happen.
- Line G (Did you materially participate in the operation of this business during 2011?): I suspect that's a yes for all of us. That just means that we did the work.
- Line H (If you started or acquired this business during 2011, check here): Again, self-explanatory. See? You don't need me! :)
- Line I (Did you make any payments during 2011 that would require you to file a form 1099?): Form 1099 is the form you would fill out if you paid someone else. You may want to double check this with your tax accountant, but I don't think you have to fill one of these out unless you paid any one person more than $600 during the year. But don't quote me on that, because I can't actually find that written down anywhere.
- Line J (If "Yes," did you or will you file all required Form 1099s?): This is an amusing question. Like you're going to say no to that. If you find that you have to file a Form 1099 for someone, then you'll check Yes here. If you don't have to file a Form 1099, then leave this line blank.
So far, so good, right? Let's move on to the next section:
The next section is all income-related. Expenses come later.
- Line 1a: This is for Visa, MasterCard, etc payments (merchant cards), as well as Paypal and Google checkout (third party payments). As you can see, this doesn't come into effect this year. It says "For 2011, enter 0". So enter 0. That was easy.
- Line 1b: This will be all the rest of your income. If you get a 1099 from Paypal, enter the income from that form on this line. If you don't get one, then you can go by your Dome book. This line will include purchase price PLUS shipping - all business-related payments you received throughout 2011.
- Line 1c: Online sellers won't be receiving W-2s, so this line will be a 0.
- Line 1d: Add up lines 1 through 3. (should be pretty easy, since lines 1 and 3 are 0's)
- Line 2: Enter any refunds that you issued.
- Line 3: Subtract line 2 from line 1d.
- Line 4: Cost of goods sold. There are 2 different ways of doing this. Officially, we should only be deducting the inventory costs of the items that we actually sold throughout the year. This requires carryover of all of our unsold items into the new year. I prefer to "zero out" my inventory on paper, so I just put all of my merchandise costs on this line. So it's the cost of ALL my goods, not just the ones that sold. You should talk to your tax accountant to see how he/she thinks you should handle this.
- Line 5: Gross profit. Subtract line 4 from line 3.
- Line 6: Other income, including federal and state gasoline or fuel tax credit or refund. This line is unfamiliar to me, so it must be relatively new. Reading the instructions for this line, it looks like most of us won't be using this line. Read the instructions just in case you have anything that qualifies for this category. I think if you received any insurance reimbursements, those payments should probably go on this line.
- Line 7: Add lines 5 and 6.
That section was easy. It was just simple arithmetic. Let's take a breather before moving on to our expenses...