If you thought understanding the offside rule in soccer or the DH rule in college baseball is complicated, try handling the Schedule C, line 9 figures. Those sports rules seem simple by comparison. Schedule C is the form that reports your Profit and Loss From Business and is usually accompanied with a filing of Schedule SE.
As an independent contractor, you are allowed to deduct different expenses. The most commonly used is the vehicle expense. That includes mileage and expenses for trips to game sites, meetings, gear and attendance to seminars. If you claim that deduction, you will also need to complete Part IV on page 2 of Schedule C or Form 4562, Depreciation and Amortization. Completing either of those forms will help you figure out the deduction to enter on line 9 and maybe line 13. The IRS publishes instructions for filling out Schedule C and other schedules. When filling out the forms, you can use the standard mileage rate method or actual expenses method. You want to use the method that gives you the larger deduction. You can switch from one method to another from year to year, but only if you use the standard mileage method in the first year the vehicle is put in service.
Standard mileage rate multiplies the number of business miles you can document times the IRS standard mileage rate. That rate may change from year to year. Parking and tolls can be deducted as well. Using the standard mileage rate means you cannot deduct the actual expense for operating and maintaining the car. If you use the standard mileage rate on a car you lease, you must use that method throughout the entire lease.
An actual expense method is more difficult to use, but in a year in which there are high maintenance and repair costs, a larger deduction may result. That method involves adding up all operating costs: gas, oil, license and registration fees, insurance, parking, tires, repairs, oil changes and other maintenance. If you use the car solely for business purposes, just add up all costs and report the number on line 9. If you use your car for business and personal, you must allocate the expenses. Section IV on page 2 of Schedule C is designed to make the allocation calculation. If you drive more than one vehicle, include the total expenses for all vehicles on line 9.
Do not include the depreciation expense in actual expenses since that number goes on line 13 of Schedule C. If you travel somewhere and rent a car, that number goes on line 24, “Travel, Meals and Entertainment.” Complicated rules may apply to determine if you can deduct 100 percent of lease payments — IRS Publication 463, Travel, Entertainment, Gift and Car Expenses deals with that number.
Just think — those points relate to only one line on your Schedule C. Good records are important and taking the time to get the numbers right or paying someone else to do it for you (another deduction that goes on some other line somewhere) will correctly report on that expense.
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