Advocacy Project Final-2

Washington & Lee Tax Clinic

Fall 2016

Tax Planning

Tax Record-Keeping for Self-Employed Taxpayers

Do you accurately maintain your records?

Keeping detailed and comprehensive records can provide a

self-employed taxpayer with valuable deductions that can, in

the aggregate, reduce their taxable income.

Spreadsheets

Income &

Expenses

Easily document

monthly income and

expenses per job.

Asset Log

Efficiently document

your business assets for

purposes of depreciation.

Mileage

Log

An easy to use template

to record miles traveled

for business purposes.

Supply

Log

Efficiently document

your expenses for

supplies relating to jobs.

Miscellaneous

Expenses Log

Assists in documenting

office and other

miscellaneous expenses.

“The hardest thing in the world to understand is the income tax.”

-Albert Einstein

Tax Record-Keeping:

Assistance and Guidelines

for Sole Proprietorships

To effectively run a business, a self-employed taxpayer must maintain

business records for tax purposes. This can be extremely daunting. In

many instances, the taxpayer does not know where to start. However,

the process can be greatly simplified with diligent record keeping.

The purpose of this packet is to provide self-employed taxpayers—

particularly, sole proprietors with no employees—simple, easy to use

spreadsheets designed to help document daily income and expenses. If

these documents are correctly and continuously updated throughout

the course of a taxable year, the taxpayer will have a better

understanding of his taxable income. Additionally, this will provide a

tax professional much of the necessary information to ensure that the

taxpayer’s business receives the full extent of any available deductions.

These deductions reduce a taxpayer’s adjusted gross income, thereby

lowering the taxpayer’s overall tax liability for that year.

DISCLAIMER: This is not specific legal advice. The attached spreadsheets are for organizational

purposes and designed to assist a tax professional in preparing a self-employed taxpayers tax return.

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Small Business Filing Requirements

If you are still reading this, then you are a sole proprietor with no

employees. As a sole proprietor, you must file a Form 1040 because

any profits that the business generates are considered your own

personal income. You must file a Form 1040 whether or not your

business is incorporated (LLC).

Form 1040 is the standard individual income tax return that most

Americans file every year. However, as a sole proprietor, Line 12

(“Business income (or loss)”) is particularly significant. In order to

properly calculate business income, the sole proprietor must complete

and attach Schedule C.

Stated simply, Schedule C accounts for all income and expenses

accrued during the course of business activities. The spreadsheets

attached to this document are designed to assist the sole proprietor in

completing the “Income” and “Expenses” section in Schedule C.

If applicable, in order to properly calculate Schedule C’s Line 13

(“Depreciation and Section 179 Expense Deduction”), the sole

proprietor must complete Form 4562. If applicable to the self-

employed taxpayer, some of the spreadsheets attached to this

document are designed to assist the sole proprietor (or the sole

proprietor’s accountant/tax professional) in calculating the proper

depreciation deduction. The depreciation deduction will lower the sole

proprietors tax liability for the year in question.

Form Download Links

Form 1040

https://www.irs.gov/pub/irs-

pdf/f1040.pdf

Schedule C

https://www.irs.gov/pub/irs-

pdf/f1040sc.pdf

Form 4562

https://www.irs.gov/pub/irs-

pdf/f4562.pdf

Filing Recap

o A sole proprietor must file a Form 1040.

o To properly complete a Form 1040, the sole

proprietor must complete Schedule C.

o To properly complete Schedule C, the sole

proprietor may need to complete Form 4562.

Due to the complexity of Form 4562

and

depreciation deductions generally, it is highly

recommended that the sole proprietor seek

professional tax assistance. Remember, business

expenses for professional tax advice may be

deductible as a business expense on

Schedule C.

Washington & Lee Tax Clinic

Fall 2016

*For a PDF version of this document

and spreadsheets, please visit:

https://law.wlu.edu/clinics/tax-clinic

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Spreadsheet Summaries

This page briefly describes the spreadsheets and their

significance in the overall preparation of a sole proprietor’s tax

returns.

Income and Expense Log

The income and expense log is designed to assist the

sole proprietor in keeping track of income and

expenses relating to clients on a per-job basis. This

will assist in completing Schedule C.

Asset Log

The asset log plays an important role in calculating

immediate and future expense deductions. The

purpose of the asset log is to assist the user in

recording and keeping track of any and all business

related assets and equipment, and associated repair

and maintenance costs. By tracking old and new

business assets, the asset log assists the taxpayer (or

tax professional) in accurately completing Form

4562.

Additionally, the log records business related

“expenses and repairs” of assets. Expenses and

repairs may be deductible every tax year. The total

yearly expenses and repairs amount is to be inserted

in Line 21 of Schedule C.

Importantly, be sure to retain any and all receipts

associated with purchases and expenses; the IRS

requires that business purchases and expenses must

be substantiated (proven upon request by the IRS)

and a receipt is the easiest way to prove that the

expenses you claim are in fact true and accurate.

Additionally, any items listed must be acquired for

business use through purchase (not a gift).

Mileage Log

The mileage log allows the sole proprietor to take

advantage of the “travel” expense on Schedule C.

The mileage log is designed to assist in obtaining the

appropriate deduction for gasoline expenses related

to travel to and from a worksite, or in the course of

business. The amount of allowable deduction

requires the taxpayer to add all miles traveled for

business purposes and multiply them by the then

applicable "Standard Mileage Rate." In 2015, the

standard mileage rate was $0.575 per mile (note that

these standards change yearly). For example, if a

taxpayer drives 1000 business-related miles over the

course of the taxable year, she multiplies 1000 x .575,

leaving her with an allowable $575 travel expense.

Therefore, $575 would be inserted in Line 24a of

Schedule C labeled "Travel."

Supply Log

The supply log is designed to assist the sole

proprietor in keeping a detailed record of work-

related supplies on a per-job basis. Expenses for

supplies can be deducted on a yearly basis. This is

significant because, for example, if the taxpayer

purchases $1000 worth of masonry for a $1500 job

(and the masonry is the only expense), the net

taxable income from the job is $500 rather than

$1,500.

Miscellaneous Expense Log

The miscellaneous expense log is designed to assist

the taxpayer in completing the “Expense” portion of

Schedule C. There are several expenses considered

deductible within the taxable year. Importantly,

some of these deductible expenses may include; legal

and professional services (including tax preparation),

advertising, utilities, rental/lease payments, office

expenses, and contract labor, to name a few.

Washington & Lee Tax Clinic

Fall 2016

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Income'and'Expenses'for'Self-Employed'Taxpayers

Month:______________________________________((((((((( Total(Income(this(Month:__________________________

Income Expenses

Amount(Paid(by(Customer Customer Job(Description Mileage(Credit Equipment(Costs

Equipment(

Maintenance/Supplies

Taxes(and(Licenses

Instruc7ons'and'Tips(

(

1.(Income(from(all(customers(count(towards(your(Adjusted(Gross(Income.(Expenses(you(incur(in(furtherance(of(this(income(may(be(deducted(from(your(Income(ﬁgure(to(determine(your(Taxable(Income.(Keeping(track(of(

your(expenses(in(an(accurate(and(organized(way(will(help(lessen(your(tax(liability(and(fend(oﬀ(any(quesOoning(by(the(Internal(Revenue(Service.((

(

2.(Use(one(of(these(sheets(per(month.(Do(not(insert(informaOon(from(two(diﬀernet(months.(If(there(is(not(enough(room(for(all(of(your(customers,(conOnue(on(to(another(page,(but(do(not(start(a(new(month(on(that(sheet.(

(

3.(InformaOon(on(this(sheet(is(determined(by(the(use(of(other(sheet,(i.e.(mileage(log(and(equipment(log.(

(

4.(Expenses(include(gas(mileage,(equipment(purchases,(equipment(losses,(equipment(maintenance,(local(taxes,(and(local(permits(and(licenses.(Refer(to(the(InstrucOons(for(Form(1040(and(supplamentary(materials.(

(

5.(The(most(important(informaOon(to(keep(track(of(on(this(sheet(is(total(income(and(total(expenses,(which(determine(your(tax(liability.('

(

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Mileage Log

Gas$Log

Month:_____________

Year:____________

Week$of:$$$$$$$$$$$

Customer Monday.Miles Tuesday.Miles Wednesday.Miles Thursday.Miles Friday.Miles Saturday.Miles Sunday.Miles

Week$of:$$$$$$$$$$$$

Customer Monday.Miles Tuesday.Miles Wednesday.Miles Thursday.Miles Friday.Miles Saturday.Miles Sunday.Miles

Instructions and Tips

1. Mileage can only be calculated for miles traveled for work. For example, miles from your home to job site or to get supplies and miles from job to job are to be

included. For additional reference, see www.irs.gov.

2. Miles for personal use cannot be used, only mileage for the purpose of your trade or business.

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Asset Log

Miscellaneous Expenses

Additional Asset Log