| This article explains the ins and outs of Schedule C, | | | | Form 1040, Line 27. In effect, this 50% deduction |
| Line 23. It is labeled "Taxes and licenses", but this article | | | | reduced your actual SE tax rate a few percentage |
| will focus on just taxes. Sole Proprietors are entitled to | | | | points below the starting point of 15.3%. |
| deduct certain types of taxes they incur in their | | | | Deductible Taxes. |
| business, so it's important that you know what types | | | | OK, how about some good news? There are several |
| of taxes are deductible and what types are not | | | | taxes that are fully deductible on Schedule C, Line 23. |
| deductible. | | | | Here they are. |
| Non-deductible Taxes. | | | | State and/or local property taxes on business assets. |
| First, the bad news. There are several types of taxes | | | | This would include any real estate taxes you pay on |
| that you do not get to deduct on Schedule C. The | | | | land or other buildings used in your business. Also |
| most obvious is federal income tax. So sorry to | | | | included in this would be personal property taxes on |
| disappoint you, but that's just the way it is. In fact, you | | | | business assets, including any personal property tax on |
| don't get to deduct federal income tax anywhere on | | | | your vehicle (to the extent the vehicle was used for |
| your federal personal income tax return. | | | | business). |
| How about state income tax? Well, that is not | | | | State and/or local sales tax. If you report the sales tax |
| deductible on Schedule C, but it is deductible on | | | | collected from customers in your sales total on Line 1, |
| Schedule A, Itemized Deductions, Line 5. So be sure to | | | | be sure to also report it here as an expense. If you |
| report it there. | | | | don't report the sales tax as part of sales, then you |
| Next comes what is probably the most hated tax of | | | | don't get to report it as an expense. |
| every Sole Proprietor, the dreaded Self-Employment | | | | Payroll taxes. If you have employees and report |
| (SE) Tax, which is calculated on Schedule SE and | | | | wages on Schedule C, Line 26, there are four main |
| reported on Form 1040, Line 57. Well, I've got good | | | | payroll taxes you also get to deduct: the employer's |
| news and bad news on this. The bad news is that is it | | | | share of social security tax, the employer's share of |
| not fully deductible. The good news is that it is partially | | | | Medicare tax, federal unemployment tax, and state |
| deductible. One-half of your SE tax is deductible on | | | | unemployment tax. |