How To Report Business Expenses

If you are self-employed or have business expenses that were not reimbursed, you will need to report them with your income taxes.  It is not difficult to learn how to report business expenses.  You can use step-by-step guidelines in your IRS booklet - for example, 1040 Instructions.  All business expenses can be reported on Schedule C, which is "The Profit or Loss from Business" form.  There are two ways of reporting expenses:  using the cash method or the cost of goods sold.  You should use the cash business method unless your expenses involve product inventory.

Enter your business name, address, social security number and employer ID, if you have one.  If you are a sales representative that is reporting business expenses, use your full name.  Check "Cash" under "Accounting Method" if you are using the cash method.  Next, enter your total income, deduct any returns and allowances and report your gross profits in Part I.

In Part II, you will report your expenses.  Expenses include any advertising, car, office, supply, utilities or wage expenses you incurred during the year.  You can deduct for any meals and entertainment you spent for business as well as the total amount of "other" expenses.  These expenses include those that are not listed in Part II.  An example might be postage costs that you had for any direct mail campaigns.  You will list and include the amount of each "other" expense in Part V of schedule C.  This section is usually on the reverse side of the sheet.  Total these expenses and write that figure in the appropriate spot in Part II.

Next, tally up all of your expenses and subtract them from your gross income.  Add this figure on the line that says "Net profit or loss."

Make sure you have filled out Schedule C completely.  Recalculate your figures to make sure they are accurate.  Any omissions or mistakes will be sent back for correction.  Report this information on your income tax return on the line entitled "Business income or (loss)."  Fill out the rest of your income tax form, check the numbers and then mail it off to the IRS.

It is highly important that you save business expense receipts throughout the year.  If the IRS audits your income tax return, you will need them as proof of your expenses.  If you do not have this information, you will not be able to report that particular expense.  It is best to retain receipts and keep a running total of business expenses.


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