Who can use Schedule C-EZ
In your probing interview, explain that there are a number of conditions that the taxpayer must meet in order to use Schedule C-EZ, and then walk through each of these conditions with the taxpayer. Taxpayers can use Schedule C-EZ only if they:
- Had business expenses of $5,000 or less
- Used the cash method of accounting
- Did not have an inventory at any time during the year
- Did not have a net loss from the business
- Were the sole proprietor for only one business (each spouse on a joint return may use a separate Schedule C-EZ to report business income from separately owned sole-proprietor business if other conditions for filing Schedule C-EZ are met)
- Had no employees during the year
- Were not required to file Form 4562, Depreciation and Amortization, for this business (Depreciation is out of scope for the VITA/TCE Program.)
- Did not deduct expenses for business use of their home
- Did not have prior-year unallowed passive activity losses from their business
- Did not receive any credit card or similar payments that included amounts that are not includible in income (see Schedule C-EZ Instructions, line 1a)
In the interview, if you discover taxpayers have issues that fall outside the scope of the VITA/TCE program, refer them to a professional tax preparer.
These conditions are listed in a flowchart at the top of Schedule C-EZ.