 Looking at the income tax formula we're focused on line one income remember on the first half of the income tax formula is in essence an income statement although just an outline the scaffolding other forms and schedules flowing into these line items one of those being the schedule C which is in essence an income statement in and of itself it having income minus expenses or business deductions get into the net income which rolls into the line one income of the income tax formula we see here page one of the form 1040 the schedule C rolls into the schedule one which rolls into page one of form 1040 line number eight that we see here here's an example of a schedule C profit or loss from business where we see the income statement format of the income minus the expenses that said let's focus on the income side of things now we're looking at the business income remember and the general rule for income from the IRS's perspective anything you get is basically income unless the IRS has an exception saying that it's not income right so when we're thinking about our business income the question is one is this income two is it exempt from us having to report it as income and if it is income where do I have to report it do I report it as business income on the schedule C or possibly somewhere else on the form 1040 or some other former schedule that said let's look at the business income introduction this chapter primarily explains business income and how to account for it on your tax return and what items are not considered income that's just as important to know what don't I have to include in there what are the exceptions and gives guidelines for selected occupations clearly different occupations have their own different needs and categorizations and some specific items related to them so if there is a connection between any income you receive and your business the income is a business income because you got it in connection to the business therefore business income so a business you'll recall in the past when we talked about if you are self-employed or not will depend in part if you're doing the activity in order to generate revenue you have a profit motive as the motive for doing the business a connection exists if it is clear that the payment of income would not have been made if you did not have the business so you can have business income even if you are not involved in the activity on a regular full time basis you so you might be saying hey it's only gig work I got a little youtube income I got a little gig work platform income or whatever it's not a big deal but it's like business income even if you're not full time I got another w2 job you still you still need to report the income says the IRS typically business income so income from work you do on the side in addition to your regular job can be business income for example you may be in the business of providing services for a ride-sharing business as a second job so you so you report most business income such as income from selling your products or services on schedule c that's where our focus has been the good old schedule c in essence an income statement but you report the income from the sale of business assets such as such as land and office building on other forms instead of the schedule c meaning if you had something on the books that you had to innocence capitalize and record the depreciation and then you sold that stuff the equipment for example you might have to report it on other forms to record the gain or loss for those particular sales as we saw in prior presentations presentation so for information on selling business assets you could see chapter three we looked at that before you got the non-employee compensation business income includes amount you receive in your business that were properly shown on form 1099 NEC remember how the structure of the IRS works this is an income tax system that means income is in essence bad with regards to taxes the government has an incentive to kind of get involved and look in like like pry into your business to make sure you're reporting your income they have the leverage to do that on the payer of a transaction therefore if you are in a business where you work for another business as a contractor as a sole proprietor then that business will likely be sending you not a w2 but a 1099 most likely a 1099 NEC if you do business for like an end customer you're a masseuse you're a hairstylist you work at a restaurant or something like that the customer is not going to give you a 1099 NEC because you cut their hair most likely because the government can't make them do that right but they can make a business do that if you get income from another business either way you still need to report the income for from a legal perspective but note that if you get a 1099 NEC the IRS has of course the 1099 NEC and they're kind of they're looking into it in that way as opposed to traditionally before they got more intrusive and more intrusive they used to randomly audit people kind of thing it was a general way of keeping things in line so this includes amounts reports on non-employee compensation in box one of the form so you can find more information in the instructions on the back of the form 1099 NEC you receive therefore on the income line of your schedule C you would expect it to be at least equal to and most likely greater than the sum of all the forms 1099 NEC you have if you put an amount on the schedule C that's less than the sum of all 1099 NEC forms it's likely the IRS will will automatically kind of question that because they're like hey wait a sec but i'm showing here my list of forms shows you have more income than you reported that doesn't mean that your net income after expenses is going to be the same as those 1099 NECs and that's often where small businesses run into a problem and that they don't report their taxes meaning the government only has the income side the 1099 NEC and the government will actually come after you at some point and say hey look you owe us money based on top line income not net income because you didn't file your tax return and therefore you didn't give us the expenses so that's another area that could come up that's to be aware of so payment card and third party network transactions so if you are in a business you may receive form 1099 K representing total dollar amount of total reportable payment transactions this may not be the amount you should report as income as it may not include all the receipts and it may include items that are not included in your receipts such as sales tax so the iris is also trying to get involved notice that we have these gig work economies that are coming into play which has skyrocketed the amount of like gig work small businesses that have come up which in my mind is great but the iris wants to the iris likes the structure of a smaller amount of big employers that have employees because they have leverage over the employer so all these small businesses that sparkled up after this gig gig economy stuff isn't exactly what the iris likes right because because they they don't have not only do they not have the control control of an employee or employee situation there they also don't have as much control to force people to give a 1099 because now you're working directly for the end customer not for another business so then they they might pressure like the payment providers the pay pals the credit card companies and so forth to try to get involved with issuing the 1099 situation and so that's where you might have another kind of 1099 form which would be reporting income so business income deduction income you report on schedule c may be qualified business income and into and entitle you to a deduction on form 1040 or 1040 s r line 13 c form 899 5 a or form 899 5 to figure your deduction if any