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Schedule C Review: From our updated manuals just out!

We just went to print on our new manuals updated for 2009 tax forms. Perfect timing since they are due this month (unless your borrower extended to October).

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comprehensive self-study manuals if you don’t have them or yours are woefully out of date. Pages 2-22 through 2-27 cover Schedule C. Then on Page 2-29 I summarize. Here is the summary.


Line 13…add back depreciation.
Line 16…adjust for debt. Usually add back interest and subtract debt. Exceptions for secondary market lenders and commercial lenders. Line 9, Car and Truck expenses, can include car loan interest.
Line 24b…subtract disallowed meals.
Line 30…add back home office.

Red Flags

Line 9…all their ‘personal cars’ are written off to the business
Line 15…Inadequate insurance
Line 17…big jump in legal fees. (Lawsuit?)
Line 21…repairs and maintenance drops dramatically when they have not replaced older equipment. Could also be a prudent cost-saving measure, especially if they are temporarily using under-utilized staff time to pick up the slack.
Line 23…taxes and licenses not high enough to cover at least 10% of wages (Line 26).
Line 26…wages do not cover family members of sole proprietor. There is nothing wrong with this but you need to know so you are not mislead by the profit amount.

Digging for Dollars

Compare at least two years and look for major differences.
Check Page Two of the Schedule C for unusual items.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.