Sample Filled-In Forms This section will familiarize you with Schedule C (Form 1040), usedto report business income or loss, and Schedule SE (Form 1040), usedto figure self-employment tax. The line numbers in bold type followthe line numbers on the form being discussed. Schedule C If you are the sole owner of an unincorporated trade or business,you must report business income and expenses on Schedule C (Form 1040)or Schedule C-EZ (Form 1040). If you own more than one business,or if you and your spouse have separate businesses, you must file aseparate Schedule C or Schedule C-EZ for each business. Samples of Schedule C and Schedule SE for Kathleen Woods areillustrated on the following pages. (Amounts have been rounded to thenearest dollar.) Kathleen Woods is a secretary for a small firm. She reports hersalary of $15,000 on line 7 of Form 1040. Kathleen is also a direct seller of household cleaning productsmanufactured and distributed by Spotless, Inc. She reports the incomeand expenses of her selling business on Schedule C because she isself-employed. Kathleen uses the cash method of accounting and files her return ona calendar-year basis. She has no employees and does not keep aninventory of the products she sells. Any products ordered for personaluse are not shown in purchases, sales, cost of goods sold, orinventory. Kathleen's customers select the products they want from a cataloglisting retail prices for each item. She places an order with Spotlessevery 10 days, at which time she also pays for her prior order. Shereceives the items ordered with an invoice payable within 10 days or,if sooner, with the next order. When she delivers the merchandise, shecollects the retail (catalog) price for each item. She can get fullcredit for any items returned to Spotless within 10 days. Kathleen's cost for each item is 65% of the retail price. During1999, she had total retail sales of $14,600. She paid Spotless $9,490for the merchandise she received in 1999. She also received an awardof $200 in January for having over $20,000 in total sales in 1998. Lines 1-3.Kathleen reports $14,600 as her gross sales on line 1. On line 2,she would enter any refunds she had to give on merchandise, as well asadjustments made to customers' purchases. Since she has no entry online 2, she enters $14,600 on line 3. Line 4.Kathleen uses Part III to figure her cost of goods sold for theyear. She has no inventory at the beginning or end of the year.Therefore, she has no entry on line 35 or line 41 of Part III. Shepurchased $10,000 worth of household products during 1999 for $9,490.(She received trade discounts of $510.) She enters her net cost of$9,490 ($10,000 - $510) on line 36. She also enters this amounton lines 40 and 42 of Part III and on line 4 of Part I. Line 5.Germany HotelsGross profit, $5,110, is the difference between Kathleen's netreceipts of $14,600 on line 3 and the cost of goods sold of $9,490 online 4. Line 6.Kathleen reports the $200 received as a bonus on line 6. She doesnot include on Schedule C any income not related to her direct-sellingbusiness, such as income from investments or her salary. She reportsthis income on other lines of Form 1040. Line 7.Kathleen's gross income from direct selling is $5,310, the sum ofher gross profit of $5,110 on line 5 and the bonus of $200 on line 6. Line 8.Kathleen gave her customers samples that cost $48. This amount wasnot included in the cost of goods sold on line 4. Line 10.Kathleen's actual 1999 business mileage was 2,100 miles (575 milesfrom January 1 through March 31 and 1,525 miles from April 1 throughDecember 31), and her total 1999 mileage was 6,000 miles. She used hercar 35% for business. She uses the standard mileage rate to figure thededuction of $660 [(575 .325) + (1,525 .31)]. Kathleen must also complete Part IV of Schedule C. Line 16b.$280 is 35% of the total interest of $800 paid during the year onKathleen's car loan. Line 18.Kathleen spent $260 for various office supplies and postage for herdirect-selling business. Line 22.Kathleen paid $392 in 1999 for order blanks, bags, andmiscellaneous selling supplies. Line 23.$168 is 35% of the personal property tax of $480 Kathleen paid onher car in 1999. Line 24.Kathleen attended two direct-selling seminars during 1999. Hertravel expenses, including lodging, were $515, which she entered online 24a. Her meals and entertainment, subject to the 50% limit, were$200 and were entered on line 24b. The limit of $100 is shown on line24c and the net deduction of $100 is shown on line 24d. Line 25.accommodation in BrightonKathleen uses her second telephone 100% for business purposes. Shepaid $264 for local service on her second phone installed for herbusiness and $62 for long-distance calls. She enters the total of $326on this line. She has no deduction for other utilities because shedoes not use any part of her home exclusively for business. Line 27.This line is for other direct-selling expenses not listedseparately on the schedule. These other expenses are listed in Part Von page 2. Kathleen paid $35 to her bank for check printing andaccount charges for her separate business bank account. She paid $30to a local business association and $38 for a 1-year subscription to aretail sales magazine. She enters these expenses, along with the $199she paid for catalogs, in Part V. She totals the expenses, $302, online 48 and enters the total on line 27. Line 28.Kathleen adds all her business deductions listed on lines 8 through27 and enters the total of $3,051 on this line. Line 29.Kathleen subtracts her total deductions on line 28 from herSchedule C gross income on line 7. Because her gross business incomeis greater than her total deductions, she has a tentative profit of$2,259. Line 30.Kathleen did not use any part of her home for business, so she doesnot make an entry here. Line 31.Kathleen has a net profit of $2,259 (line 29 - line 30). Sheenters her net profit here, on line 12 of Form 1040, and on line 2,Section A of Schedule SE (Form 1040). Line 32.Kathleen does not have a loss, so she skips this line. If she had aloss and was not "at risk" for all her investment in thebusiness, she would have to attach Form 6198. See the Schedule Cinstructions for the meaning of "at risk." Short Schedule SE Kathleen uses Short Schedule SE (Form 1040), because her netearnings from self-employment are more than $400 and the total of hernet earnings plus her wages subject to social security and Medicaretaxes (FICA) are not more than $72,600. Line 2.Kathleen enters $2,259, the amount from line 31 of Schedule C (Form1040). Line 3.Kathleen enters the amount from line 2, $2,259. Line 4.Kathleen multiplies her net profit by .9235 and enters the result,$2,086. Line 5.Kathleen multiplies $2,086 (line 4) by .153 and enters $319 as herself-employment tax. She also enters this amount on line 50 of Form1040. Line 6.Kathleen enters one-half of the amount from line 5. She also entersthis amount on line 27 of Form 1040 as an adjustment to income. Schedule C (Form 1040), page 1, for Kathleen Woods Schedule C (Form 1040), page 2, for Kathleen Woods Schedule SE (Form 1040), page 1, for Kathleen Woods