This is where good record keeping can really save you money on your taxes. You can write off a wide variety of business expenses you paid during the year, including things like the cost of advertising, commissions, supplies, legal fees, repairs and maintenance, and office expenses. You can also deduct:
Car and truck expenses: You can report these costs in one of two ways: Enter your actual expenses—for gas, oil changes, repairs, insurance, etc.—if you have supporting documentation, or take the IRS standard mileage rate. The rate for 2014 is 56 cents per mile.
Depreciation and Section 179 expense deduction: The law allows businesses to depreciate—or gradually deduct the cost of —assets such as equipment, fixtures, furniture, etc., that will last more than one year. For these assets, you first fill out Form 4562: Depreciation and Amortization, and enter the result on Schedule C. You also use Form 4562 if you elect the Section 179 "expensing" deduction, which lets you, subject to certain limits, deduct the full cost of assets (both new and used) in the year they are placed in service. For tax years beginning in 2014, you can deduct up to $25,000 bonus depreciation under Section 179, including certain real property improvement costs. Bonus depreciation is applicable to qualifying new (not used) assets placed in service by December 31, 2014.
Pension and profit-sharing plans: Only enter contributions you made for your employees on Schedule C. If you also made pay-ins for yourself, report those on Line 28 of your 1040.
Travel, meals and entertainment: For business travel, deductible expenses include those for lodging, transportation, tips, fax services, Internet connections, and certain other incidental expenses. You'll see that travel is reported separately from business meals and entertainment: That's because for meals and entertainment you can deduct only 50 percent of your allowable expenses.
Wages: This category may seem straightforward, but is a little tricky if you produce and sell goods. Here you report amounts paid to employees, such as bookkeepers, receptionists, salespeople, etc. However, If you have production workers, you'll report their wages as part of the cost of goods sold in Part III.
Expenses for business use of your home: You qualify for this deduction if you use part of your home regularly and exclusively for your business. That means the home office has to be a separate area in your home where you don't mix business with other activities. It must be used for business on an ongoing basis, not just once in a while. You calculate the deduction first on Form 8829: Expenses for Business Use of Your Home and enter the result here.
Once you've entered all your deductions, subtract them from gross income to get your net Schedule C profit or loss, which you enter on Line 12 of your 1040. But be careful. If you have a loss, you're not done yet. You have to go through some additional steps in this section before transferring that loss to your 1040, because it may not be fully-deductible. You must declare whether you're fully "at risk" for amounts invested in the business. If you are, then you can go ahead and take the full write-off. If not, you'll have to fill out Form 6198: At-Risk Limitations to determine whether your deduction is limited.