Quick question on Filing

[sanosuke689]

Hello,

This is my first business while I'm still in college and I just have a couple of questions on filing. I've been reading "Surprisingly Simple" By Mike Piper (AWESOME BOOK) and I notice that I did not make more than 400 dollars. So there is no self employment tax, correct?

I actually did not do much with the business, as I'm just trying to get distributors and inventory, so my 2007 year was a loss if anything. Do I still need to include a Schedule C even if I did not make a dime?

My income taxes are fairly small, but I don't want to mess anything up with the business. Thank you!

-Nathan

[Evan]

Yes, file a Schedule C. You probably do have a loss, and that part is deductible.

Even if you do have under $400 in net income, while you don't play self-employment tax, you'll be paying income tax on it.

Good luck with your business.

[sanosuke689]

Thank you!

Even if you do have under $400 in net income, while you don't play self-employment tax, you'll be paying income tax on it.

I agreed on it...

I'll think all done...
good luck..

[sanosuke689]

So as I'm going through the schedule C, I just put down my start up costs as expenses and the little stock I have purchased but not sold yet, I also put that down correct?

Then put down the money I've made (all zero's) and report my total as a negative number correct? After, I just file my normal income tax and just send this form in with it, right?

Sorry for the confusion, this is my first time ever filing taxes as I just got out of high school. I'm pretty scared of getting audited. Thanks for your help + patience.

-Nathan

[Evan]

Nathan,

Start up costs are deductible.

Stocks are not deductible on Schedule C, it's on Schedule D. The price you paid, plus commissions is your "cost basis". When you sell it, what you earn, less the sales comission is your "sale price". If it's under one year, it's a short-term gain/loss. If over one year, it's a long-term gain/loss. The tax rates are different, but if your income isn't much, you probably paying no taxes anyways. Of course, each persons situation is different.

Example: Purchase 100 shares of ABC on 1/1/2007 for $1 a share, and the commission is $10. Your cost basis is ($1 x 100 = 100 + 10) $110.00. Now if you sell it on 1/1/2008 -- it hasn't been over one year -- it's short term. If it was 1/2/2008, it'd be long-term.

You sell it for $2 a share, with a $10 commission. Your sale is for $190 (2 x 100 = $200 - $10 = $190) Subtract $190 from $110, and you have an $80 gain.

In this example, isn't it nice that 20% of your gain went straight to commission! Guess this stresses the importance of investing larger cash amounts

[Evan]

And yes, on Schedule C lines 1, 3, 5, and 7 would all be zeros (assuming that's true).

Do yourself a favor too -- read the Schedule C instructions. http://www.irs.gov/pub/irs-pdf/i1040sc.pdf.

[sanosuke689]

Hey Evan,

Thanks SO MUCH for your help and patience. I have done some reading but in all honesty, this subject still gets a bit confusing. I will be sure to read the PDF and hopefully I will be able to comprehend this

Thanks again! I really appreciate your help.

-Nathan

[OldJack]

>>and the little stock I have purchased but not sold yet, I also put that down correct?<<

Evan, I think he may be talking about merchandise inventory with the word "stock" rather than shares of ownership.

**Note: I can now post without the pop-ups!!! Thanks to whoever fixed it.

edit: Well... I spoke to soon!! The old pop-up is back. I guess this may be my last post.

[Evan]

I may have read over that one Jack. [Need more sleep!]

Nathan, if you're referring to actual inventory, those costs are deducted when the inventory is sold. This is referred to as "COGS" or Cost of Goods Sold. That can also become complex, because there are different ways to compute COGS...

As you can see, accounting and taxes can either be really exciting -- in some twisted way, for some.... And for others, it's about as exciting as counting the number of cracks in the cement as they walk down the street.