The Internal Revenue Service (IRS) has increased the optional standard mileage rates for 2011. These optional rates can be used to calculate deductible costs of operating an automobile for either business or other uses instead of reporting actual travel-related costs. Charitable mileage rates remain at the current 14 cents a mile in 2011. The table below summarizes the increases for this year.
|IRS Standard Mileage Rates in 2011|
|Jan 1 – June 30||July 1 – Dec 31|
|Business||51 cents||55.5 cents|
|Medical/Moving||19 cents||23.5 cents|
|Charitable||14 cents||14 cents|
From the IRS Newsroom IR-2011-69, June 23, 2011
In order to understand what the Schedule C-EZ is, you need to understand the format of the related IRS Form 1040 Schedule C. Are you self-employed or a sole proprietor of a small business? When you file your income tax return, you use the longer Schedule C to report your business income or loss on your personal (rather than corporate) income tax return. Your net business profits, calculated on either schedule, are summarized on the top page of your IRS 1040, US Individual Income Tax Return. You can also use either Schedule C to report wages or expenses you accumulate during a tax year if you are a statutory employee, are involved in qualified joint ventures, or have income that is reported on an IRS Form 1099-MISC, Miscellaneous Income. You need to complete either Schedule C in order to calculate self-employment tax.
Just like the 1040EZ “short form” for personal income tax, Schedule C-EZ is based on VERY simple business information. You provide information in Part I, such as name and principal business activity, your gross and net profit in Part II, and information about any vehicle expenses you want to claim, in Part III. There are eight separate questions in total; Schedule C has 48 separate questions. Both schedules are fundamentally the same. They are financial statements of profit and loss (P&L) that provide current information about operating revenue and offsetting expenses.
In order to use the Schedule C-EZ, your business or profession must:
Since both schedules help you calculate the net profit (or loss) for your business, there is no fundamental difference in the forms. However, part of successfully running your own business is to track all business expenses in order to determine how much it REALLY costs to run your business. The Schedule C might have more questions to answer but, if correct understood, helps you better identify how you spend money in the pursuit of profit. Categorizing and tracking your business-related expenses throughout the year might save you from misreading a business trend or wishful thinking. Running a successful business in a competitive world requires strategic planning and concentration on more than just business goals; you need to account for every dollar spent in pursuit of profit. Schedule C-EZ might provide the general answer about pursuing profit but it won’t identify where your money goes on the way to achieving your business revenue.
Many people believe money is the embodiment of material wealth and allegedly personal freedom. Regardless of our sophistication and education, we are typically swept up with this misrepresentation. We seek financial well-being anywhere we can find it. Those of us without real cash reserves or large disposable incomes mistakenly replace what we lack in funds with expensive lines of credit. We leverage what we have in order to acquire what we seek to possess.
Unfortunately many of us confuse what we want with what we believe we need. We accumulate indiscriminately. We oftentimes compound matters by purchasing material goods that have little or no long term value with leveraged cash obligations that increase over time. Herein is the beginning path of many a person to their eventual financial doom. Unfortunately in order to accumulate wealth in our society, we need capital. We need to grow our money through investments of appreciating value; we need discipline, luck, time, and a particular mindset.
Our personal response to money determines how successfully we can use it to the best advantage. Notice how the inherent concept in this last sentence was to USE money toward some further end. Money does not, in itself, give us wealth and freedom; it is actually only a vehicle to achieve it. We need to understand the emotions that affect our decisions about how we use money in order to improve ourselves and gain a greater prosperity and well-being. Few people would argue that if we ran our lives like a home-based business, our emotional approach as a successfully owner/operator to money would probably have a more utilitarian perspective.
The secret here is that money looks different to a business person; “capital assets” are used to finance business goals. Money is a “means” to some “end”. It is not typically perceived as personal reward. The successful sole proprietor of a home-based business tends to mentally separate what is in their “pocket” from what is in the “business operating account”. Similarly, lines of credit leverage the business’ capital resources to increase future financial returns. Responsible management means anticipating investment returns that will exceed the total costs of the credit used. If you run your life like a successful home-based business, you don’t charge your personal 10-day vacation on a credit card! Think of yourself not as consumer but potentially a producer of value. You take a 10-day business trip and, while there, develop new business contacts. Cash expenditures serve some financial purpose and are routinely goal-directed; money is spent to build value rather than just spend cash. This change in mindset especially in these hard times is a critical secret if one wants to gain financial success and personal freedom.