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Changes to Schedule C, Line 1 for 2011

By Wayne M Davies

Republish: EasyPublish™
Published: 19Feb2012
Word count: 434
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There are some important changes on the new 2011 Schedule C -- Profit or Loss From Business (Sole Proprietorship) -- related to the reporting of income on Line 1. This article will explain those changes and how they may affect you and your small business.

If you take a close look at the 2011 Schedule C, you'll notice something new on Line 1. On the 2010 Schedule C, Line 1 is labeled "Gross receipts or sales." And this is how this line has been used for many years. Now Line 1 has three components: Line 1a, Line 1b and Line 1c. Line 1a says "Merchant card and third party payments. For 2011, enter 0." Line 1b says "Gross receipts or sales not entered on line 1a". And Line 1c says "Income reported to you on Form W-2 if the 'Statutory Employee' box on that form was checked."

So, instead of just one line to report the sales of your sole proprietorship, there are three lines. Let's look at each one separately.

Line 1a. In 2011, credit card companies and so-called third party networks such as PayPal are required to issue a new information return called Form 1099-K. And so the IRS has already re-designed Schedule C to correspond with the new 1099-K. But, and this is typical of the government, even though sole proprietors will begin receiving these Form 1099-K's for 2011, you are not required to report the 1099-K income separately on Line 1a. That's why Line 1a says, "For 2011, enter 0". Again, this is confusing.

So just leave Line 1a blank. But for 2012, you will be required to report any 1099-K income on that line. You've been warned way ahead of time!

Line 1b. This is where most Schedule C filers will report most, if not all, of their income. In other words, Line 1b serves the same purpose as the old Line 1.

Line 1c. If you are a statutory employee and received a Form W-2 on which the Statutory Employee box was checked, this is where you report that W-2 income. And if you are not a Statutory Employee (which will be the case for most self-employed people), you just leave Line 1c blank.

The end result of this change from Line 1 to Lines 1a, 1b and 1c is this: if you are not a Statutory Employee, report all your sales on Line 1b, and just leave 1a and 1c blank. Should you receive a Form 1099-K, it is not necessary to report this amount separately on Line 1a for 2011; but you will be required to do so for 2012.

Looking for more ways to increase your deductions and slash your taxes? Get your free copy of the Special Report, "How To Instantly Double Your Small Business Tax Deductions" at www.YouSaveOnTaxes.com. Wayne Davies is the Internet's top tax preparer and author of 3 ebooks on tax deduction strategies for small business owners and the self-employed.

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