A Taxpayer may use a Schedule C- EZ when he has <$5,000 of business expenses?
A taxpayer who uses Schedule C-EZ will usually save a lot of time and trouble when filing taxing his or her tax return for their own small business.
However, the taxpayer must first be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business income and expenses on their 2007 Form 1040 federal income tax return.
The IRS has established that "the maximum deductible business expense threshold for filing Schedule C-EZ is $5,000". Thus, if this threshold has been met, the taxpayer may be eligible to file a Schedule C- EZ, which is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship).
This schedule has an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle. It Includes a simple worksheet for figuring the amount of deductible expenses. If that amount of deductions does not exceed $5,000, and if the business did not have a net loss, then the taxpayer be able to use the C-EZ instead of Schedule C.
This is a more complicated Schedule that is two pages long and is divided into five parts — Income, Expenses, Cost of Goods Sold, Information on Your Vehicle, and Other Expenses.
Clearly, the taxpayer must maintain an excellent set of accounting records to produce the line item data required on Schedule C. Additionally, the taxpayer must be able to provide accurate ending inventory records that is part of the Cost of Goods Sold Section as well.
Furthermore, Schedule C requires more detailed information than the C-EZ and the instruction package is 10 pages long! This Longer Schedule C must be used when deductible business expenses exceed $5,000 or when a business has a net loss.
In conclusion, using Schedule C-EZ can save time and reduce paperwork burden for eligible businesses.