Updated Training for TY2023
Click image for video presentation Click here to open PDF or click this link for PowerPoint Presentation
Below image are several practice scenarios
Click image for video presentation Click here to open PDF or click this link for PowerPoint Presentation
Below image are several practice scenarios
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Schedule C Cheat Sheet (Quick Guide) -- shared by a NC Program (click Image to open
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Self-Employment Worksheets- Have worksheets available at Intake--if the taxpayer doesn't already have an itemized/organized list of income & expenses. For many newly Self-employed-- teach them what they need and how to complete. **Also, give them a blank one to have ready for NEXT tax year! **See below for job specific forms
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When equipment or tools are purchased-- If under $2,500 we can claim De minimis safe harbour and expense them in the current tax year INSTEAD of depreciating them which is out of scope.
Items over $2,500 need to be depreciated and we can't do their return. See how to enter these in PDF. 
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How and Why I like to use the 3 lines on the Schedule C to itemize items like income & expenses.
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Practice Scenarios Below
(Summary of Results in table) **Note-- if your total is different than mine-- DO NOT ASSUME you are wrong, double check yours, if you still disagree, email me a copy of your PDF and let me look at it-- maybe I goofed. |
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(2 of the recordings I updated in TY23, the rest are still from TY22 as they still serve their purpose--the values changed minimally).
Marge Simpson--Janitorial and Babysitting Updated sheet & 1040 12/18/2023
Client Information Sheet Completed 1040 Review with Client Recording TY22
CARTER HAMILTON-- Senior looking to make extra cash as a DoorDash Driver. Updated 12/18/2023
Client Information Sheet Completed 1040 Review with Client Recording TY23
PIPPI LONGSTOCKING-Uber Driver Updated sheet & 1040 12/18/2023
Client Information Sheet Completed 1040 Review with Client Recording TY22
JOHN DOE Sr --Uber/Lyft Driver **DEBBIE M--THANK YOU FOR DOING THE 1040 TY2024 FOR ME!
Client Information Sheet Completed 1040 Review with Client Recording TY23
Betty Andrews--LPN Home Health Care Worker **DEBBIE M--THANK YOU FOR DOING THE 1040 TY2024 FOR ME!
Client Information Sheet Completed 1040 Questions Review with Client Recording TY22
Marge Simpson--Janitorial and Babysitting Updated sheet & 1040 12/18/2023
Client Information Sheet Completed 1040 Review with Client Recording TY22
CARTER HAMILTON-- Senior looking to make extra cash as a DoorDash Driver. Updated 12/18/2023
Client Information Sheet Completed 1040 Review with Client Recording TY23
PIPPI LONGSTOCKING-Uber Driver Updated sheet & 1040 12/18/2023
Client Information Sheet Completed 1040 Review with Client Recording TY22
JOHN DOE Sr --Uber/Lyft Driver **DEBBIE M--THANK YOU FOR DOING THE 1040 TY2024 FOR ME!
Client Information Sheet Completed 1040 Review with Client Recording TY23
Betty Andrews--LPN Home Health Care Worker **DEBBIE M--THANK YOU FOR DOING THE 1040 TY2024 FOR ME!
Client Information Sheet Completed 1040 Questions Review with Client Recording TY22
Sometimes a 1099-NEC is issued and it is NOT for Self-Employment. If your client received a 1099-NEC and doesn't quite understand why, or says they are not self employed-- it would be good to have a more in-depth conversation with them.
Why did they receive this money?
Why did they receive this money?
- For work/services performed-- goes on Schedule C.
- If it was for a "sporadic" activity-- example would be if I went and gave a speech at a local business and got paid for it-- if this is not something I usually do (a one and done or very very seldom type thing) then this can be considered "Other Income" and entered on Schedule 1. However, I cannot deduct any expenses against this income as the tax law changes in 2018 removed business expense deductions from Schedule A.
- If this income is to report Hobby Activity--then the full amount gets reported on Schedule 1 as other income and expenses to offset income cannot be claimed ( as per changes to tax law in 2018) --Hobby income makes this Out of Scope for VITA. (I don't see why though).
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Mileage Tracker from GOFAR
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Diagram-- Business vs Commuting Mileage (PUB 4012)
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Expense Tracker From Prepare & Prosper
From Keepertax.com an awesome Online Mileage Log -- in Google Sheets which can be converted to Excel (click image to open--then save a copy to your Google Drive)
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Transportation Expenses Allowed if Doing Business Use of Home
Out of Scope for VITA but I have been asked about this many times 
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Misc. thoughts/notes and great resources below:
Self-employment Tax-- a way to explain to a client: If you were working for someone else & getting W-2 reportable wages, you know that you would have a portion deducted for Social Security & Medicare taxes. And, your employer would also be paying these amounts. Now if you're in business for yourself, you are both employer & employee, and it is your responsibility to pay both portions. This tax is based upon the profitability of your business as reported on Schedule C & not on your taxable income as reported on Form 1040. Hence, it is not uncommon for someone to owe no “income tax” at the time that they file, but still owe substantial self-employment taxes (& penalties, if quarterly estimated payments have not been made). Learn more under the Tax page
Some thoughts: Not required to know, but things I try to remember and share with clients when appropriate
- First, I have seen clients try to come up with expenses that pretty much equal their income from self-employment to try and avoid any self-employment tax. I try to make sure all the expenses reported are legit by asking clarifying questions. If it is a cell-phone or internet, what percent of the month is the service used for personal vs business? Did they actually pay for it in the tax year?
- Secondly, some clients don't want to be bothered, they just want to file their return and get it over with (they don't know the true implication of entering all that income without any expenses).
- Well, per IRS rules-- A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, ... Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. You might think this is counter productive by the IRS-- after all, if they claim less expenses, the taxpayer would pay more in taxes. Read on...
- Net earnings from self-employment are included in earned income for EITC purposes. There are many 'smart' people who "lie" about their self-employment income, or purposefully do not want to report all expenses so they can get the maximum EITC credit for their family size and filing status. According to the IRS 'fraudulent claims of self-employment income and business expenses to qualify for or maximize EITC are increasing.' This is why all income and all expenses must be reported-- so the correct amount for the EITC credit, if qualified, is calculated.
- Thirdly, a lot of people do not realize that their gross earnings not only determine their tax for the year, the amount an individual earns a year is also used by Social Security Administration to determine monthly benefit amounts when that tax payer retires or applies for disability.
- To receive Social Security benefits, tax payers have to earn at least 40 credits (it is possible to earn up to 4 credits a year). You earn credits when you work and pay Social Security taxes. The number of credits does not affect the amount of benefits you receive.--So a minimum of 10 years is required to receive benefits. The amount of credits earned is used to determine eligibility for retirement or disability benefits, as well as family’s eligibility for survivors benefits. IN 2022, you must earn $6,040 to get the maximum four credits for the year.
- Social Security benefits are typically computed using "average indexed monthly earnings." This average summarizes up to 35 years of a worker's indexed earnings. This is a very confusing calculation, you don't need to worry about it, I just try to point out to some taxpayers, that the very low income they are reporting, while great for a low to no tax bill, may have a negative impact on their 'benefit calculation' down the road. I had several Uber/Lyft drivers, income reported by Uber $50-70K, the huge amount of mileage and fees charged brought their incomes down to basically nothing. I just warn them that Social Security isn't looking at the $50-70K in income, but rather the profit.
- From Social Security: 'We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.'
- From Social Security: 'We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.'
Found this and thought it might be helpful-- the Business Codes for a Schedule C-- they come from NAICS North American Industry Classification System --oF Course, you can just use the FIND/search feature when on the listing of codes in taxslayer as well. Just thought I would share. (I noticed some of the codes in Taxslayer were wrong--I have reported it to them to hopefully correct)
https://www.naics.com/code-search/?trms=458110+&v=2022&styp=sic&qid=ab61d983a3
https://www.naics.com/code-search/?trms=458110+&v=2022&styp=sic&qid=ab61d983a3
Here is a multipage spreadsheet for tracking all income and expenses including mileage. You need to enter the correct mileage for the tax year. In Google Sheets which can be converted to Excel (click image to open--then save a copy to your Google Drive)
Mileage reimbursement covers: cost of gas, repairs, car insurance*, maintenance (tires, oil changes, wiper blades, car washes, brakes, etc.), and depreciation. VITA/TCE sites can only do business mileage reimbursement, not actual expenses.
*If client drives passengers (like Uber/Lyft) then ask if they reported that to their insurance company and their insurance rates went up because of that--most car insurance companies charge an extra fee for the coverage of transporting people. That extra required coverage CAN BE deducted as well as business mileage. Other than that, car insurance is not deductible as it is included as part of mileage reimbursement.
*If client drives passengers (like Uber/Lyft) then ask if they reported that to their insurance company and their insurance rates went up because of that--most car insurance companies charge an extra fee for the coverage of transporting people. That extra required coverage CAN BE deducted as well as business mileage. Other than that, car insurance is not deductible as it is included as part of mileage reimbursement.
Terrific handout for doing Rideshare Driver Taxes
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Ridesharetaxhelp.com
One resource you may find very helpful is http://www.ridesharetaxhelp.com/ Ridesharetaxhelp was created by the Center on Budget and Policy Priorities, part of the Get It Back Campaign. 
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More detailed-- a few years old now-- shared by a volunteer
SETO--Self-employment information and worksheets to share with clients (2 different English versions) 2 different Spanish versions
Educate client how to use-have them fill out before appointment and at end of appointment - give them a copy (blank) to complete before next year's tax appointment. Thank you for sharing this Pati!
**This is a guide to help the client. Major Purchases and Office Use of Home are OUT OF SCOPE.**
**Mileage example #3 would be out of scope because we aren't doing returns with office use of home**
Educate client how to use-have them fill out before appointment and at end of appointment - give them a copy (blank) to complete before next year's tax appointment. Thank you for sharing this Pati!
**This is a guide to help the client. Major Purchases and Office Use of Home are OUT OF SCOPE.**
**Mileage example #3 would be out of scope because we aren't doing returns with office use of home**
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