If you are completing Federal Schedule C (Form 1040) Profit or Loss From Business, you will enter the income and expenses which will then calculate the net profit (or loss) of the business. That net profit (or loss) amount then flows to Line 3 of Schedule 1 (Form 1040) Additional Income and Adjustments to Income. If there is a net profit, self-employment tax (Social Security tax and Medicare tax) will be calculated on Schedule SE (Form 1040) Self-Employment Tax and will appear on Schedule 2 (Form 1040) Additional Taxes Line 4, and a deduction from this schedule will also be shown on Schedule 1 (Form 1040) Line 14, per the IRS instructions.

To enter or review information for your business on Schedule C:

1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
2. Click Business Income in the Federal Quick Q&A Topics menu to expand, then click Business income or loss from a sole proprietorship.
3. Click + Add Schedule C to create a new copy of the form or click Edit to review a form already created.
4. Continue with the interview process to enter all of the appropriate information.

Note. Depending on the amount of net income, there could also be federal taxes calculated which may necessitate quarterly tax payments be made to avoid an underpayment penalty at the end of the year. This could also apply to the state return. If you estimate there will be little (or no) net income in this first year, then estimated payments may not be necessary (especially if there is also Form W-2 tax withholding on the return which can offset any tax amount due from a business).

Following are the steps to calculate estimated taxes for next year (if necessary):

1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
2. Click 2021 Estimated Tax Payments in the Federal Quick Q&A Topics menu, then click Yes to review the requirements for making estimated tax payments or applying your 2020 refund for 2021.
3. On the screen titled Federal 2021 Estimated Tax - Calculation Option, select either Use worksheet calculation or Pay 100% of 2020 tax liability (this will be 100% if your adjusted gross income did not exceed the threshold), then click Continue.
4. You must enter your estimated earnings in the 2021 column (using the current year's amounts for reference) to calculate the estimated amount to pay.

Note. If your return currently shows a federal refund amount, the screen titled Federal 2021 Estimated Tax - Calculation Option will allow you to select to apply all or part of the refund to next year's tax liability or to not apply any of it to next year. Click Continue to select a method of calculating your estimated tax payments.

Note. The method of paying 100% (or 110%) of the current year's tax liability is only to avoid the interest penalty for underpaying your taxes in the following year. In the TaxAct program, this amount is calculated on Form 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts, Line 4.

Use the worksheet method to estimate tax for the following year if you wish to cover all of the estimated tax that will be due on that return.

Additional Information

• IRS Publication 334 Tax Guide for Small Business (For Individuals Who Use Schedule C)
• IRS Publication 509 Tax Calendars
• IRS Publication 583 Starting a Business and Keeping Records
• IRS Publication 535 Business Expenses

Related Links

• IRS Website Provides Tools to Help Small Businesses Understand Employment Taxes
• Four Things to Know about Taxes and Starting a Business

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.