Schedule C or Form 1040 is used to record income or loss from a business whether it operates by you or a profession offered by you as a self-employed. This is also called as Form 1040.
Whenever you classify a transaction, QuickBooks Self-Employed equals it with a row on your Schedule C. Here, we will provide you the more information on the schedule C classifications and how to classify transactions in QuickBooks.
Schedule C categories in Detail
This category is used to classify the expenses related to raising and selling your items, products, or services. This involves elements like online advertising costs, business cards, brochures, mailers, and flyers.
Below is the list of items that you can classify types of transactions as advertising:
- Listing fees
- Web advertisement, banner ads, and pay-per-click fees
- Promotional purchases and giveaways (T-shirts, caps, bags, pens)
- Fees paid to advertise and public relations agencies
- Business logo design
- Marketing emails and direct mail campaigns
- Promotions and promotional events
- Newspaper and magazine advertising
- TV advertising
- Professional performance videos and CDs
- Package design fees
- Billboards, signs, and display racks
- Phone book promotions
- Banners, posters, bumper stickers, and door-hangers
- Yellow Pages listings
Assets are physical items that you use to operate your business and create income. These are ordinarily large purchases such as computers, construction machinery, furniture, and machines.
Important: If the buying cost of a property is more than $ 2,500, you will have to claim it as the asset. It also means that you need to track its reduction.
The new IRS rule gives you the full cost of less than $ 2,500 as an expense rather than an asset. When you indicate the commercial asset as an expense, you will get a larger discount. You can furthermore claim for products that are less than $ 2,500 as assets, but many small businesses favor to claim them as expenses.
Below is the list of items that you can classify types of transactions as Assets:
- Apps/software/web services that cost you more than $200.
- Computers that cost you more than $200
- Copiers that cost you more than $200.
- Furniture that costs you more than $200.
- Other tools and equipment that cost you more than $200.
- Phones that cost you more than $200.
- Photo and video equipment that costs you more than $200.
Tracking asset depreciation
Over time, asset value also falls because of the utilization of natural wear and tear. This lack of power is called depreciation. You have to track the value and depreciation of your assets.
But, QuickBooks Self-employed does not track depreciation. You manually have to keep a report of essential information, such as the price of the item you purchased and the length of time. At the tax year-end, Turbotax or your tax pro will assist you to set a devaluation schedule (or claim a Section 179 deduction).
Note: QuickBooks Self-Employed also does not track transport depreciation
Car and truck
This category is used to classify the expenses that are linked to managing your vehicle for business. This covers expenditures such as fuel, insurance, and fees. QuickBooks self-employed app automatically tracks the mileage of your business.
The approved mileage method is used by QuickBooks to deduct vehicle expenses. This clarifies your reduction. You can determine while filing your taxes, which method is best for you: Standard benefit or Actual spending method.
Tip: Always mark car and truck expenses as a business while classifying the expenses. Do not divide them among business and personal. TurboTax or a tax professional will assist you to calculate the exact ratio of personal versus business use on your tax return.
Below is the list of items that you can classify types of transactions as Car and Truck:
- Vehicle insurance
- Vehicle loan and loan interest
- Vehicle repairs
- Gas and fuel
- Parking and tolls
- Vehicle registration
- Vehicle lease
- Wash and road services
Note: Parking and tolls may be deducted if they are associated with your business travel. Expenses and fees outside the commercial use of your car, such as movement between home and workplace as a regular W-2 employee, are not uninteresting. These are recognized as a commitment expense. Mark them as individuals so that QuickBooks does not cut them.
Commissions and fees
This category is used to classify commissions and fees outside of regular 1099-MISC payments.
Note: Do not use this category to track what you pay for contractors to work for you. Classify the payment for the actual work of contractors as contract labor.
Below is the list of items that you can classify types of transactions as commissions and fees.
- Referral/broker/selling fees
- Finder’s fees
- Sales commissions
- Fees for legal referrals
- Fees for drop shippers
- Fees for online referrals
- Shared commissions (common in real estate)
- Commissions paid to managers and agents who are not employees
Important: If you pay a self-governing entrepreneur $ 600 or more for commissions for a project and do not withhold taxes of any kind, you must send 1099-MISC to the contractor and the IRS. You have to manage 1099 in QuickBooks Online or any other program.
This category is used to classify the payments that you made to your contractors who worked for you through the year. Typically, these are the people for whom you file 1099-MISC.
Important: If you have paid $ 600 or more for labor or services on a project to a contractor or freelancer, but have not refunded any taxes, you must send the 1099-MISC to the contractor and IRS. You have to manage 1099 in QuickBooks Online or any other program.
Below is the list of items that you can classify types of transactions contract Labor
- Payment is given to subcontractors and independent contractors
- Payment is given additional project support
- Payment is given creative resources
- Payment is given outside research and data collection
Note: Do not use this category for commissions or fees that you use outside of paying for contractor labor. Classify commissions and fees like commissions and fees.
This category is used to categorize expenses to ensure your business and operations. This covers the employee’s comp and general liability insurance. Keep in mind always, do not include your health insurance in this category.
Important: If you are working from a home office and made payments for homeowner’s insurance, then this payment does not come under this category. Homeowner’s insurance is only included when you take the basic reduction based on square footage.
Below is the list of items that you can classify types of transactions as Insurance.
- Business insurance
- Property insurance
- General liability insurance
- Workers’ compensation insurance
- Fire, theft, and flood insurance (for an offsite office or storage space)
- Renter’s insurance (for an offsite office or storage space)
- Errors and omissions insurance
- Malpractice insurance
- Business interruption insurance
This category is used to classify business-related interests like credit card interest, loan interest (not the debt itself), and other business interests.
Below is the list of items that you can classify types of transactions as Interest.
- Other interest
- Business loan interest
- Mortgage interest
- Credit card interest
Legal fees and professional services
This category is used to classify the fees paid for professional advice or like consultation fees (contains lawyers and accountants also). It is intended to assist with specific business deals, sales transactions, or annual taxes.
Note: If your lawyer or accountant gives you a W-9 form then they are recognized as a contractor. In such a situation, do not use this category for their payment.
Tip: If you have consulted an attorney or accountant for personal and professional advice, ask for a fee-setting bill. You can cut your expenses with this.
Below is the list of items that you can classify types of transactions as Legal fees and professional services.
- Expert community membership fees
- Association dues (including state bar dues)
- Legal fees for business matters
- Accountant fees
- Short-term consulting fees
- One-time management meeting fees
- One-time marketing meeting fees
- One-time engineering meeting fees
- One-time technical meeting fees
- Web site analysis fees
- Other consulting fees for short term advice on specific deals
- One-time logo and web design fees
- Fees are paid to talent agents or business and personal managers, who are not paid as employees
This category is used to categorize food expenses related to business.
These are simple and essential meals on the go for your self-employment work. When meeting customers or business associates, they can also pay for your meal. Meals and related visits should have a clear business objective. The cost should be reasonable. Always check the IRS website for the latest rules on food cuts.
Tip: The rules for business meal reductions have changed. Commercial meals are taxable at the current 50% limit. But commercial food cuts have expanded. It now involves food given by employers through an in-house location similar to the cafeteria.
You do not need to keep receipts for food under $ 75. But, it is a good idea to keep good records of all meals despite the cost. You must present to the IRS the business purpose, date, amount, and for each meal, you are cutting.
Some examples of tax-deductible meals:
- Food while traveling for training, conferences, trade shows, or conferences
- Food while traveling to meet candidates, customers, or business partners
- Meals while traveling checking up on city property or location
Some examples of food that may be deductible
- Eating with inherent customers, current customers, or business associates where you discuss the business.
- Food for the spouse of a client or business partner (and yours, if other spouses are present).
This category is used to classify the office supplies you purchased during the tax period.
Office expenses are miniature purchases and items that you use immediately, such as tapes or postage stamps. Items like computers or file cabinets that you keep for a long time are assets.
Below is the list of items that you can classify types of transactions as Office expenses.
- Delivery fees
- Stamps, labels, envelopes, and mailers
- Shipping materials
- Storage and filing boxes
- Memo and message pads, Post-it notepads
- Whiteboards and markers
- Cleaning supplies
- Calendars and planners
- Staples, staplers, paper clips, and scissors
- Tape, tape dispensers, and rulers
- Business membership fees to superstores like Costco and Sam’s club
- Pickup and delivery services
- Bottled water delivery
- Shredding services
- Backup data and archiving services
- Office cleaning
- Handicap access expenses
- Office decorating expenses
- Separate cable line for your office
- Separate security system for your office.
Other business expenses
If you cannot detect extra category for spending, then use other business expense categories.
Tip: You can also use other business expenses to provisionally classify temporary transactions. Examine everything in this section at the end of the year. You can use TurboTax or work with a tax professional to determine how to classify these expenses.
Below is the list of items that you can classify types of transactions as other business expenses.
- Apps/software/web services
- Other tools and equipment
- Photo/video equipment
- Other business expenses
Items that do not include:
- Charity contributions
- Political contributions
Rent and lease
This category is used to classify rental and lease expenses for equipment, office space, and property rentals. This cover such things as office space, computers, copiers, small commercial equipment, and buildings. This does not involve vehicle rental costs. For vehicle rental expenses you can use the Car and Truck category to track them.
Tip: If you are planning to use your home office for your self-employed work, you can cut some expenses.
- Machinery rent and lease
- Building rent and lease
- Portable storage units
- Small machinery and appliance rentals for business
- Warehouse space
- Showroom space
- Office buildings
- Retail shops
- The expense for servicing and maintenance, but only include the office or property that not your home. It does not cover remodelings or improvements.
- Minor roofing, HVAC upgrades for a business space
- Computer repair and upgrade visits from technical specialists
- Floor refinishing for a business space
- Carpet and furniture cleaning in a business space
- Janitorial services for a business space
- Paint, spackle, and electrical work
Repairs and maintenance
This category is used to classify expenses that are correlated to common repair and maintenance. This includes essential maintenance and repair.
Suggestion: As per the rule-of-thumb, home office maintenance are deductible if they are appropriate. Improvements, replacements, or updates that add value to your property are acknowledged assets. These are beyond easy repair or maintenance. For upgrades use the asset category.
Below is the list of items that you can classify types of transactions as Repairs and maintenance.
- Plumbing repairs
- Routine servicing for heating or air conditioning
- Cleaning gutters
- Light fixture repairs
This category is used to classify the items you purchase and then to sell or use the products that you sell. This involves raw materials, packaging, and Delivery.
Below is the list of items that you can classify types of transactions as supplies.
- Art supplies
- Textile and other craft materials
- Wood and metal stocks
- Food and drinks that you sell as packaged goods, or you use as ingredients
- Fitness machines you sell to customers
- Learning items like books, notebooks, flashcards, etc, that you sell to students
- Association materials or systems that you sell to clients
- Home furnishings you renovate or upcycle and re-sell
- Specific paper for photos or print-making
Taxes and licenses
This category is used to classify the diminished taxes and license fees that are associated with your self-employed work.
Tip: Your QuickBooks Self-Employed subscription falls into this category. We automatically categorize subscription expenses if your bank account is connected to online banking.
Below is the list of items that you can classify types of transactions as Taxes and licenses.
- Business licenses
- Property tax
- Estimated taxes
- Governmental tax
- Sales tax
- State tax
- Other taxes
- Doing business as (DBA) or Fictitious Business Name one-time filing fee
- Affiliation fees
- Business name search fees
- Copyright application and enrollment
- Brands and logo fees
- Domain name fees
- Software licensing and updation fees
- Real estate taxes for an office you own (not your home office)
- Another taxes inflicted by your city, state, or county to manage your business
- Fees to receive, draft, or remove a lease
This category is used to classify expenses that are associated with business travel.
These trips should be separate from self-employed work and personal travel. Always check the IRS website for the latest rules on travel reductions.
Tip: When traveling away from home, both by yourself or with customers, then use the food and entertainment category, do not fall into this category.
You do not need to have a receipt for purchases under $ 75. but, it is always a good practice to keep records of all meals regardless of cost. You must be able to show to IRS the business purpose, date, and total cost of every travel.
Below is the list of items that you can classify types of transactions as Travel Expenses
- For business travel, Air, train, or bus fare.
- Hotel charges for business travel (without meals)
- Car expenses that you hire on rent.
- Taxi, shuttle charges, and transport tips when out of the station for business
- Gas, oil, parking fees, and tolls when you are out of the station.
- Computer rental charges while gone on business
- Internet access charges while gone for business
- Phone calls during away on business
- Tips while traveling (besides for meal tips, which are only 50% deductible)
- Dry cleaning if you need to stay overnight for business
- Charges for delivery equipment, stocks, products, accessories essential for business
- Charges of collecting baggage and accessories while a business trip
- Overdue check-out charges, if you are expected to stay overtime for business
This category is used to classify utility payments into an office or commercial property. If you are working from home, then go with the following steps to classify your home office expenses.
Below is the list of items that you can classify types of transactions as Utilities.
- Gas and electricity
- Trash collection
- Monthly pest control service
- Security alarm monitoring service
- Sewer and septic service
Hope, you have understood the Schedule C categories and the Classification of Transaction In QuickBooks Self-Employed. But if you still looking for technical help then feel free to contact our Intuit Certified ProAdvisors and get instant help for your for Queries by dialling our toll-free +1-855-441-4417. We are 24*7 available in the assistance for our customers.