Strategic Planning for Schedule C: Paycheck Protection Forgiveness, QBI, SE Health Insurance, Retirement Plans

Description

Sole proprietors, independent contractors, and gig workers all file Schedule C, Profit or Loss From Business. There are unique issues for these businesses. On the forefront is applying for PPP loan forgiveness. Since the owner receives net proceeds from the business, often there is no salary paid to others. At the same time, the draws taken may count toward loan forgiveness.

These small businesses often have an office in their homes. This is a valuable deduction allowing tax savings for utilities, cleaning, insurance, and other expenses taxpayers pay regardless of business operations. Preparers must consider the $5 per square foot deduction versus deducting actual expenses. There is no depreciation recapture with the former, but the latter usually results in greater tax savings. Understanding which method is better when, how to report each, and which businesses are eligible for this deduction is critical for practitioners working with these businesses.

Unique to Schedule C filers is the ability to deduct, before adjusted gross income, self-employed insurance. These rules are complex, but eligibility for this deduction lowers taxable income and lowers the floor for calculating other tax benefits. Schedule C filers often have a retirement plan along with W-2 earnings and can also contribute to a self-employed retirement plan. Tax advisers who know how to maximize the retirement plan limits can provide substantial tax savings to sole proprietors.

Listen as our panel of tax veterans discusses filing Schedule C for sole proprietors, including maximizing the qualified business income deduction, minimizing self-employment tax, and when becoming an entity is a viable alternative.