How do I model Schedule C Income?

As of April 2024, the Schedule C has a new look! Here's how to use the new Schedule C fields to model Business Income, the QBI Deduction, Self-Employed Retirement Plans, and Self-Employment Tax.

Modeling Business Income

To access the new Schedule C data entry fields, click on the pencil icon located to the left of the Schedule C income value. 

Modeled after the Scenario Analysis, this worksheet will detail the client's business(es). The Business Name, Proprietor, and Net Profit are pulled and populated from an uploaded tax return, if applicable. To add an additional business, select + ADD ENTITY, allowing you to create a blank entity or copy from an existing one much like creating a new scenario.

Next, enter the information for that specific business:

• SSTB: Make note if the business entity is a Specified Service Trade or Business (SSTB) by checking this box, if appropriate (SSTB; fields of health; law; accounting; actuarial science; performing arts; consulting; athletics; financial services; brokerage services; investing and investment management; trading; dealing in securities, partnership interests, or commodities; and any business where the principal asset of the trade or business is the reputation or skill of one or more owners or employees). Understanding if the business is considered an SSTB is important for calculation of the QBI Deduction (discussed later).
• Statutory Employee: Check this box if the income from this business is paid out in the form of a W-2 (not common). Social security and Medicare tax are withheld from W-2 earnings, so you do not owe Self-Employment Tax (SE Tax) on these earnings. Statutory employees include full-time life insurance agents, certain agent or commission drivers and traveling salespersons, and certain homeworkers. If you had both SE income and statutory employee income, you will want to record any SE income here, and the statutory employee income in the Wages Worksheet within the "1040 Income" section.
• Gross Sales: Enter gross sales as reported on line 7 of Schedule C.
• Net Profit: Enter net profit after all expenses, not including expenses that are reported on Schedule 1 as business-related deductions (Deductible part of SE Tax; SEP, SIMPLE, and other qualified retirement plan contributions, and SE health insurance deduction). This amount is the amount of Schedule C income subject to SE Tax.

• At Risk: Check this box if a loss reported for this business and that loss is equal to the amount you could actually lose in the business under the at-risk rules.
• Allocable Share W-2: Indicate any statutory employee income here (see above) so that that component of business income can be accounted for with respect to the QBI Deduction on line 4 of Form 8995-A.
• Allocable Share UBIA: Indicate any allocable share of the unadjusted basis immediately after acquisition (UBIA) of all qualified property owned by the business so that that can be accounted for with respect to the QBI Deduction on line 7 of Form 8995-A.
• SE Health Insurance: If the business is providing the health insurance coverage for the owner, enter the cost of that coverage here. Holistiplan will automatically incorporate this number into Schedule 1 Deductions, and additionally, reduce QBI by this deduction as a component of the QBI Deduction calculation as well.

Calculating the QBI Deduction

The new Schedule C worksheet now automatically calculates Qualified Business Income used to calculate the QBI deduction.  Beginning with Net Profit, items like the deductible portion of SE Tax, Retirement Contributions, and SE Health Insurance are backed out to arrive at QBI. To follow along with these calculations, click on the calculator icon located to the left of the QBI value.

Further adjustments can be made to QBI using the following data entry fields in the Schedule C worksheet and QBI Deduction Calculation tab:

The rows for Allocable Share of W-2 wages and unadjusted basis in qualified property immediately after acquisition (UBIA) come into play when taxable income before the QBI deduction exceeds certain amounts.

Self-Employed Plans

Holistiplan will now calculate the maximum contribution for either a SEP-IRA, Solo 401k or SIMPLE IRA on a per entity basis. When you click the pencil icon in the self-employed plans row in the Schedule 1 deductions section, you will see the following:

Note that for the Solo 401k contribution, the calculation does not factor in any elective deferrals (i.e., employee/salary contributions to a 401k, 403b, etc.) made to other workplace plans owned by that taxpayer, as there is currently no entry for that information. If a taxpayer is covered by multiple 401k plans, any elective deferrals made to those plans needs to be backed out of the max Solo 401k contribution.

Calculating Self-Employment Tax

Self Employment tax will now also automatically calculate based on the Proprietor and Net Income provided on the Schedule C. The Self Employment Key Income Fields worksheet, accessed by clicking on the pencil icon located by the Schedule E and/or F income, now pulls in Net Income, assigns it to the taxpayer (based on the listed proprietor), and calculates SE Tax. 

Further adjustments can be made to SE Tax using the following data entry fields in the Self Employment Key Income Fields worksheet or the Other Taxes tab:

Statutory Employees

If the proprietor is considered a statutory employee and is reporting net income (after expenses) on Schedule C, click the "Statutory Employee" box to make sure you don't inadvertently calculate self-employment taxes on those wages. 

You will, however, want to indicate that those wages are considered W-2 wages for Social Security and Medicare purposes, so that Holistiplan calculates the appropriate amount of Additional Medicare Tax and/or self-employment tax if there is additional self-employment income being reported on a second Schedule C: