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Sole proprietors and schedule C-EZ.

Sole proprietors who operate a business or professional practice have, until this filing season, used schedule C to report their profits or losses. Beginning this year, many sole proprietors will use a simplified schedule C-EZ.

Sole proprietors may use the new schedule if they meet 10 requirements - for example, that they have gross receipts of $25,000 or less and business expenses of $2,000 or less. Some of the other requirements are that they use the cash method, operate only one business as a sole proprietor, have no employees during the year, have no inventory at any time during the year, have no net business loss and do not deduct home office expenses.

Schedule C has 44 lines, compared with only 15 lines in schedule C-EZ. The Internal Revenue Service estimates three million self-employed individuals are eligible to use the new schedule.

Observation: Sole proprietors should move as many expenses as possible from schedules A and E to schedules C or C-EZ. The miscellaneous itemized deductions of schedule A are subject to the 2% rule and the investment interest expense of schedule E is subject to the net investment income rule - restrictions that don't apply to items on schedules C or C-EZ.
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Mar 1, 1993
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