Schedule C - Helpful Information For New Businesses

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, go to our Schedule C - Entering Sole Proprietorship in Program FAQ.

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).

To calculate estimated taxes for next year, go to our Estimated Tax Payments - Next Tax Year (AFTER return filed) Electronic Funds Withdrawal FAQ.

If your return currently shows a federal refund amount, the screen titled Federal 2022 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.

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.

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