Cruz_2025Release_PPT_Ch006_Accessible

Chapter 6: Self-Employed Business Income Overview

Focuses on reporting self-employed business income using Schedule C for taxpayers engaged in profit-making activities.Learning Objective 1: Income for Schedule C Trade or Business

• Trade or Business: Activity engaged for profit, reported on Schedule C.

• Gross Receipts: Includes direct sales, contractor work, and Form 1099-NEC income.

• Cost of Goods Sold: Reduces sales for gross profit, typically using the Cash Method of Accounting.

Learning Objective 2: Trade or Business Expenses

• Deductibility Criteria: Ordinary (customary), Necessary (helpful), Reasonable (in proportion).

• Forbidden Expenses: Bribes, fines, political expenses are not deductible.

Learning Objective 3: Depreciation

• Components: Asset basis, depreciation periods, and methods (e.g., straight-line).

• Periods: 3 years (tools), 5 years (autos), 39 years (nonresidential real property).

Learning Objective 4: Transportation and Travel

• Deductible: Transportation and travel costs including local visits and overnight stays.

• Standard Mileage Rate (2024): 67 cents/mile.

Learning Objective 5: Home Business Use and Bad Debts

• Home Office: Must be exclusive and for business use, deductions reported on Form 8829.

• Bad Debts: Deductible if ordinary expenses; partially or completely worthless.

Learning Objective 6: Hobby Loss and Education Expenses

• Hobby Losses: Not deductible post-2018; income reported, expenses not allowed.

• Education: Deductible if improving skills or meeting job requirements.

Learning Objective 7: Self-Employment Tax

• Tax Components: Social Security (12.40%) and Medicare (2.90%), total 15.30%.

• Qualified Business Deduction: Up to 20% of qualified business income.