Note that if you’re depreciating an asset associated with your home, you must also use the percentage of business use according to your Business Use of Home calculation (this is the percentage of square feet used for your business divided by the total square footage of your home). If the asset is used exclusively for business, and has no personal use associated with it, you can enter your percentage of business use as 100%.

Even though you may opt to depreciate an item using Section 179, you’re still required to choose a depreciation method from the drop down list shown here.

You will then indicate if the property is a listed property. A listed property is one that is allowable to use for both business and personal purposes.

Typically, you will only select the listed property option if it is a vehicle that you are depreciating.

Entering Actual Car or Truck Expenses

If you are claiming actual business car or truck expenses (not using standard mileage) you will be able to depreciate your vehicle and claim your actual expenses under the Depreciation screen.

You will need to enter some information about the vehicle, such as the date it was placed in service (the first time you used it for business purposes), the original cost and the percentage of business use. Unless you have a dedicated vehicle used only for business and not at all for personal use, this figure will not be 100%. A simple way to calculate your percentage of business use is to track your total miles driven and the total business miles. You will divide your business miles driven by your total miles to get the percentage of business use.

For example, if you drove your vehicle a total of 12,000 miles during the year and 4,800 miles were for business use, your business use percentage would be 4800/12000 = 0.4. You will multiply 0.4 x 100 to get 40%.

You will then input the amount, if any, of Section 179 deduction that you will take on the vehicle and then indicate if you claimed any special depreciation on your vehicle in a prior year. These are both faster ways to depreciate eligible expenses. For a better understanding of these depreciation topics, view What is depreciation?

Under Listed Property Information, you will select the type of vehicle that you are depreciating:

After you select the vehicle type, you will be prompted to enter your actual expenses. Actual car expenses include the following:

• Licenses

• Lease payments

• Registration Fees (not plates)

• Gas

• Insurance

• Repairs

• Oil

• Garage Rent

• Tires

• Tolls

• Parking Fees

You will total up all of your relevant receipts and enter your total car expenses in the “Actual Expenses” box.

Once you’ve entered all your business assets, you will move to the Depreciation Questions. Answer each question that applies by checking the corresponding box.

Check the boxes if they apply to your situation. Note that the Business Income Limitation will be pre-populated with $1,050,000 which is the maximum Section 179 expense deduction allowed. Most self-employed businesses will not exceed that figure.

Enter your “other expenses”

Next, you will be guided through your Other Business Expenses.

You will be able to enter other business expenses that did not fall into the previous expense categories listed. You will enter these expenses, by category, one at a time.

This section covers anything else that is deductible but not listed elsewhere. The most common will be:

• Cleaning services

• Software or apps that cost more than $200 (otherwise they can be listed as an office expense)

• Accessibility and financing expenses such as online service fees, bank and merchant fees, and credit card processing fees.

• Parking, tolls & registration fees (for those who chose to use standard mileage)

For example, if you paid $500 for janitorial services over the year, you would enter that as:

Enter your business use of home expenses

Keep in mind that you can deduct space in your home used exclusively for your business. This can include a home office, even if it is just part of a larger room or a storage area where you keep supplies for your business.

Sole proprietors may use part of their home in their business. For example, if you are a virtual assistant, you may have a home office. You can also count space used for the storage of inventory or product samples.

The first and most important thing to consider is if the space in your home is exclusively used for business. That means that it is only used for your business. If the space is partially used for business and partially for personal purposes, it usually won’t qualify unless you meet the criteria for an exception. See How Do I Include the Costs of My Home in Part I: Getting Ready for Tax Season for more information.

The IRS provides two options for deducting the business use of your home:

• You can use the Regular Method which accounts for all the actual expenses associated with your home and determines the deductible portion by applying your business use of home percentage; or

• You can take a Simplified Method where the deduction is based on a set rate from the IRS if you are using 300 square feet or less of space. This method will allow a maximum deduction of $1500.

More on this topic is covered in detail under “How do I include the Costs of my Home?” in MyFreeTaxes Self-Employed Tax Guide: For Small Business Owners.

To prepare for claiming these deductions on your return, whether you rent or own your home, there are two steps you need to take: 1) determining the space used for duties related to your business and 2) determining the allowable expenses related to your business use of your home.

You will first need to indicate if your home was used for child care. Unless you are a child care business, this will not apply to you. Next, a simple calculation will be performed to understand what percentage of your home is used for business. To get this, you will need to enter the amount of square feet you use for business or for storage of inventory and the total square footage of the home.

Next, you will begin listing home expenses associated with your business. You will be asked to enter Direct and Indirect expenses. Unless the expense is related to 100% exclusively used business space, such as storage of inventory, you will enter the expense as Indirect.

You may enter 100% of direct expenses.  Indirect expenses will be calculated using the business use of home percentage. These are the expense lines that you will see in which you need to enter your direct and/or indirect expenses:

Business owners should be mindful not to enter expenses twice. If you list certain expenses like utilities or rent related to your home office or business use of the home, do not enter those expenses again when completing the Schedule C - Business Expenses section of the software.

In this next section, Excesses and Carryovers, you will only enter information if it applies to your situation.

You will then be asked about the Depreciation of Your Home. This is only applicable if you own your home.

After you enter details about your home, such as the date first used for business and adjusted basis or its fair market value, the system will depreciate the expense, based on your Time/Space Percentage, and provide you with the deductible depreciation amount for it. There is a separate category in TaxSlayer, “Depreciation”, where you can depreciate other large purchases that are not subject to your Business Use of Home Percentage.

Next you may see the Schedule A Adjustments screen which will show you what your calculated Business Use of Home Percentage is and the deductible mortgage interest and real estate taxes you have based on your business use of home.

You will then be taken back to the Schedule C summary page. There, you can go back and edit previous entries or move on.

Qualified Business Income (QBI) Deduction

As you complete your business-related tax sections, be mindful of the Qualified Business Income (QBI) deduction, also called the “pass-through income deduction”. QBI is the net amount of qualified income, deductions, gains, and losses from your business. This deduction allows you to deduct up to 20% of your self-employed/small business income from your total taxable income. If eligible, the QBI is deducted from your Adjusted Gross Income (AGI).  So, while this is not part of the Schedule C, it is dependent upon your business income, which is why you’re asked about it when preparing your business taxes.

You will be asked additional questions to calculate your Qualified Business Income deduction. The first question is your qualified business income adjustment amount. This is because you need to adjust your qualified business income for the self-employment tax deduction, the self-employed health insurance deduction, and for your deduction for contributions to qualified retirement plans. Unless you are entering manual adjustments, you can leave this blank.

Here is more information from TaxSlayer on these QBI adjustments:

Enter the total amount of adjustments as they apply to you, otherwise leave this blank. If you are unsure of what your totals are, you can complete the remainder of your filing and come back to this section later to enter accurate information. If you have no adjustments to make, you will leave the first box blank.

If you paid W-2 wages to employees, you would enter the total amount paid. If you have no W-2 wages paid to employees, you will leave that box blank.

The program will automatically calculate your QBI based off of your business income entries.

Congratulations!

Congratulations! You just entered all the information needed on your business and can now complete the rest of the screens to complete your tax return.

How to Make Tax Preparation Easier

Many small business owners can self-prepare their tax return to save money and ensure their taxes are being done accurately. After all, no one knows your business like you do! The key to hassle-free tax filing is to have proper recordkeeping and bookkeeping throughout the year. Keeping track of all payments you receive and receipts and invoices for your purchases is invaluable and will save you a lot of time.

The importance of filing electronically

When it’s time to submit your taxes, submitting electronically is far better than printing and mailing your return. This is because there’s a higher degree of accuracy and the process is much quicker.

Need more time to file or to pay your tax bill?

You may find that you need more time to file or that you have a tax bill and need more time to pay it. If that happens, we suggest that you pay what you can and then request an extension. You will need to put in the request by April 15th, but you can receive an extension for up to 6 months. You will still have to pay additional penalties for not paying any taxes you may owe on time, but that will be better than ignoring it altogether. There is no financial penalty for filing an extension if you need more time to file and are owed a refund.

Need more help?

America’s SBDC represents America’s nationwide network of Small Business Development Centers (SBDCs) – the most comprehensive small business assistance network in the United States and its territories. Sponsored by the U.S. Small Business Administration (SBA), they provide management assistance to small business owners in the form of one-on-one counseling, training seminars, assistance with SBA loans, and technical assistance.

Small business owners and aspiring entrepreneurs can go to their local SBDCs for free face-to-face business consulting and at-cost training on a variety of topics. There are nearly 1,000 local centers available to provide no-cost business consulting and low-cost training to new and existing businesses. SBDCs help local businesses start, grow, and thrive.

You may also call 211 to get connected to additional resources and services that can help you, your family, and your business.

Preparing for Next Year

Now that you’ve filed your tax return this year, consider changes you might make to help the process go even smoother next time! Part I: Getting Ready for Tax Season will help you identify the business and bookkeeping practices you can implement to help ensure your business and your taxes go smoothly.