 Here we are in our example form 1040 populated using LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the form 1040 and related forms and schedules at the IRS website, irs.gov, irs.gov. We're going to start at our standard starting point. A single filer, Mr. Anderson, no dependents. We're going to start with the W2 income and then look at the change from W2 income to a Schedule C type of income situation. And then we have the standard deduction at the 12,950. That gets us down to the 87,050. We can mirror this information in a tax worksheet, which is often helpful to do because it can give us a better idea of double checking the numbers double check the numbers. I triple check my friend and seeing all the different areas that are affected as we rework it in a formula format. So we got the hundred thousand. We got the 12,950 getting us down to the 87,050. We typically rely on the software to calculate the tax on page two 14774. We're going to say there was $15,000 withheld from the W2 income to start out with gets us to the 226. Mirroring that over here, we've got the 14774 we plugged in from the software and then we got the 15,000 withheld gets us to the 226. Now what we want to do now is just get a feel for all of the changes that could happen when we have a Schedule C sole proprietor type of business. Now note that when you're doing taxes, if you're doing your own taxes, you want to consider do you want to do your taxes yourself or when does it get complicated to the point where it might be useful to get more advice and if you're doing tax preparation, then you might want to think about where do you want to specialize in your tax preparation? Do you want to specialize? For example, in lower income tax returns, more basic tax returns generally, although they are getting more complicated with changes to tax credits and refundable credits. In that case, you would be doing more tax returns trying to scale up the tax returns that you do and have a lesser profit margin per return. Or do you want to specialize on higher income tax returns? And in that case, they're going to be more complex. You're not going to be able to do as many of them, but you'll have a higher profit margin per return. If you're doing more complex returns, then the question is what kind of complexity do you want to be taking on? Do you want to be taking on complexity of taxpayers that have multiple states, for example, versus one state taxpayers that have foreign income and citizen kind of situations that could have complications to the tax code? And another place you could specialize is business. Do you want to deal with people that have a business type of income such as a schedule C type of income, which will add more complexity? Now, if you're thinking about a business type of income, then you often are kind of dipping into the world of accounting and bookkeeping as well, because in particular, many small businesses might need help with adjusting entries at least, or possibly with their bookkeeping and invite advice on that realm in that area. So you might, if that's a specialty that you're in, that's usually more on the CPA route of tax preparers, but or bookkeeping people that have to bookkeeping and taxes, or you can work with bookkeepers that can help you out with that kind of component of it. And then of course, we can specialize within the industry within a business, meaning we might be working in construction business might be our specialties or basically small businesses, service businesses, businesses that deal with inventory or not. And then oftentimes, we often also have to specialize in the type of entity that could be structured for taxes, meaning do we want to specialize just in schedule C type of businesses? Or do we also want to specialize in S corporation pass through entities, LLC pass through entities, partnership pass through entities, and and C corporation type of business entities note, most of the time the type of business entity will also be linked to some degree to the location and to the industry. So different industries may tend towards certain industry structures, like an S corporation versus an LLC or the other way around. And so you could specialize in that way as well. But note that adding any kind of business tax return, even just a schedule C, which is the most basic of all of them, because that means we don't have to file another separate tax return adds a lot of complexity to the software, even if we're not even getting into like the bookkeeping side of things. And we also have tax planning side of things that could come up as we add more complex tax returns. So that's the first thing you want to kind of keep in mind. Note that if you have an S corporation or an LLC that would be separate entity tax returns that would then flow into your your 1040. And if you're in that situation, you might still be able and you might still say, Hey, look, I'm willing to populate the form 1040. But I don't want to get to dive into the weeds on the bookkeeping side of things. And you might just say someone else would be specializing in doing the tax return for the for the corporation entity. And then you put in the K one into your system. That's another way that you might want to structure it. But remember that you want to be able to tell clients no, you want to be able to say, I'm going to do what I'm going to do. This is my specialty. This is my business plan. You either fall within it. If you fall outside of it, then you've got to be able to say, I'm not going to take on clients that aren't in that category. Otherwise, you're gonna, you're gonna deviate from your business plan. And you're gonna be doing a lot. You could end up doing a lot of work, a lot of accountants, including myself, this has happened to me, you end up doing a lot of work that are beyond your the scope because you let the job creep start in without just defining what you want to do and saying, no, I'm only going to be picking up clients that are within the range that I'm focused on because that's my business plan type of thing. Okay, so that said, let's see what happens. Let's see what changes here. If I just do a basic kind of schedule C just to look at the differences in all the different impacts on the tax return. So I'm going to go to the data input. I'm going to say the W two is gone. Let's remove the W two and say that is gone. And then let's just add a schedule C. Now I'm just going to add a very basic type of schedule C, not getting into the bookkeeping just to see what pulls over on the tax return. So I'm going to just put a miscellaneous here principle business code. You would want to make sure that you're setting up the principle of business code properly. But I'm going to choose I'm just going to pick a business code. I'm going to say other support services. You might be able to pull that from the prior, your tax return if you're picking up a client from another. If you're picking up a new client or something like that business name if it's different from the name on the 1040 because it's a sole proprietorship. So the actual name might be just the name of the taxpayer. For example, accounting method cash versus accrual. I'm going to say cash. We'll talk about that later. If accounting method change inventory, are you dealing with inventory? I'm not going to deal with inventory right now. That is an added level of complexity. And oftentimes could have an impact on whether you choose cash or accrual method. Is this for the taxpayer spouse or joint note when you're talking about a married couple, then there you have to start to think about who is this being applied to this business, because you will be paying self employment tax on it if you have income. And that self employment tax is going to be applied to the social security number of one of the spouses, even though your income tax is kind of a joint return situation. So it's important to kind of think through that. We'll talk more about that later. First schedule C. I'll keep that there. And then I'm just going to say income. Let's say the income is 120,000. And then I'm just going to put in one expense right now. Let's just say advertising of 20,000, just to see an element of an income statement, clearly getting the income statement from the client is going to be part of the situation. Note what I do not have here is a balance sheet. We only have an income statement. So if I go back on over the schedule C, as you can see, is just an income statement. So we've got the information up top. And then we've got 120,000 minus the 20,000. So clearly the schedule C itself can be quite complicated depending on, you know, how extensive the income statement is.