Small Business Taxes & Management

Frequently Asked Questions


Deductions on Schedule C

 

Small Business Taxes & ManagementTM--Copyright 2010, A/N Group, Inc.

 

The Study. If you do business as a sole proprietorship (or as an LLC with only a single member), you'll file your business taxes on Schedule C and attach it to your Form 1040. The Government Accounting Office has done a statistical study of Schedule Cs to determine the income and expenses (on a combined basis) for businesses in various industries. For the year 2008 (latest year available) there were some 22.6 million nonfarm sole proprietorships, with LLCs accounting for about 803,000 of that total.

We've computed the percentage of expenses based on the overall results. Thus, the expenses for mining companies were added to CPA firms, hunting and trapping (yes, some 12,000 Schedule Cs showed income from hunting and trapping), etc. As a result, the totals are broad averages. You can download an spreadsheet file from the IRS Web site with the raw data for over 125 industries at www.irs.gov/taxstats/indtaxstats/article/0,,id=134481,00.html. Select the table for 2008 (the latest year) under Income Statements.

The tables below show the expenses as a percentage of total deductions. The first column is simply the expenses as a percent of deductions other than cost of goods sold. The second column includes cost of goods sold. Cost of goods sold plus other deductions amount to just under 80% of gross income for the total sample.



                          Expenses as Percentage      Expense as Percentage
                            of Other Deductions    of CGS plus Other Deductions

Cost of Goods Sold

Cost of Labor                                                  3.0
Purchases                                                     26.7
Materials and Supplies	                                       5.4
Other costs                                                    6.4

Other Deductions

Advertising                         2.4                        1.4
Car/truck                          13.8                        8.1
Commissions                         2.2                        1.3
Contract labor                      5.7                        3.4
Depletion                           0.2                        0.1
Depreciation                        6.7                        3.9
Employee benefit programs           0.5                        0.3
Home office business deduction      1.9                        1.1
Home office depreciation            0.2                        0.1
Insurance                           3.0                        1.7
Legal/professional services         1.8                        1.1
Meals and entertainment             1.2                        0.7
Interest on mortgage                1.1                        0.6
Interest on other business debt     1.3                        0.8
Office expenses                     2.1                        1.2
Pension/profit sharing plans        0.2                        0.1
Rent on machinery/equipment         1.5                        0.9
Rent on other business property     5.5                        3.2
Repairs                             2.5                        1.5
Salaries and wages                 12.5                        7.5
Supplies                            5.2                        3.0
Taxes                               2.9                        1.7
Travel                              2.1                        1.2
Meals/entertainment                 1.2                        0.7
Utilities                           4.0                        2.3
Other deductions                   18.3                       10.6


    Totals                        100.0                      100.0

Other Points. The results presented represent those for a range of business sizes. The percentages change when the analysis is broken down by business size. For example, when the study looked just at businesses with higher dollar volume, the percentage of expenses for pension and profit sharing expenses increased.

Finally, while the statistics are interesting, they shouldn't affect your deductions. You should take all the deductions you're entitled to and none that you're not. Just make sure you keep good records and can substantiate your expenditures.

 


Copyright 2010 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject.--ISSN 1089-1536


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--Last Update 09/21/10