Self-employment comes with many perks. But when tax time comes around, it also means you’ll be filing more than just Form 1040. Chances are, you’ll also need to file Schedule C.
The Schedule C form might seem daunting at first. But while it has several lines (48 in total), you probably won’t need to fill out every line, and most of the information required is straightforward.
What Is a Schedule C?
You might be thinking of Schedule C as “Schedule C taxes,” but the full name of the form is Schedule C: Profit or Loss From Business (Sole Proprietorship). It’s one of those tax forms that does exactly what its name says: it calculates your business’s net profit or loss for tax purposes. It’s an essential form when it comes to most small business income taxes.
Sole proprietors and single-member LLCs need to fill out a Schedule C every tax year. Once you fill out the form, you’ll file it with your Form 1040.
Who Needs to File a Schedule C?
There’s a good reason why people sometimes refer to Schedule C as the self-employment Schedule C. If you’re self-employed, as either a sole proprietor or a single-member LLC, you’ll typically need to file a Schedule C.
Sole proprietorship. You’re a sole proprietor if you’re the sole individual running an unincorporated business, according to the U.S. Small Business Administration. This means your business is not a legal entity on its own. As a sole proprietor, you’d be responsible for all the debts and obligations of your business, but you also receive all its profits.
What about side gigs? Yes, sole proprietorship also covers side gigs, so if you have a side hustle on top of your regular employment, you’ll need to file Schedule C.
Single-member LLC. Sole proprietors often operate their businesses as single-member LLCs. LLCs are a popular structure of business ownership because they provide limited liability protection for business owners. Unless the LLC elects to be taxed as a corporation, the IRS views single-member LLCs as a “disregarded entity.” This means the LLC isn’t considered separate from its owner for tax purposes.
Statutory employees and owners of certain qualified joint ventures will also need to fill out Schedule Cs.
Where Do I Get a Schedule C?
If you don’t have a copy of Schedule C, you can download the form directly from the IRS. Tax software, such as TaxAct, TurboTax, and H&R Block, can also provide you access to Schedule C. Note, however, that many tax software packages don’t include Schedule C as part of their free or basic plans.
How Is a Schedule C Different From a W-2?
The number of tax forms you have to include as part of your tax returns can be confusing, and you may be wondering about the differences between a W-2 and a Schedule C:
- Form W-2 is for employment taxes. It’s the form employers are required to give to their employees.
- Schedule C is the form that must be filed by sole proprietors and single-member LLCs.
But what if your self-employment income comes from your side gig, and you’re employed in a day job? You’ll receive a W-2 from your employer, but you’ll still need to file a Schedule C to report your side gig income.
How to File a Schedule C
There are many ways to file a Schedule C:
IRS website. You can fill out Schedule C directly on the IRS site and then save or print out a copy with all the information you’ve filled in.
Tax software. You might need to upgrade to a paid package for Schedule C filings if you’re using tax software such as TaxAct, TurboTax or H&R Block. Some of the paid tiers also offer tax advice. Tax software sites can also be a good place to find Schedule C examples.
Tax professionals. If you have the budget for it, consulting with a tax expert can be an ideal way to get your Schedule C filed—and any other tax forms you need to file as well.
What Info Do I Need to File a Schedule C?
“Be prepared” is a good motto. When you’re an employee, being prepared means having your W-2 on hand so you can report your employment income. But what do you need when reporting your business income on Schedule C?
Here are some of the items you should have on hand when preparing your Schedule C:
- Your business’s income statement and balance sheet for the tax year
- Receipts for all of your business expenses for the tax year
- Your inventory records, if your business maintains inventory
- All relevant vehicle-related records such as your mileage log, if you use your vehicle for business
Sections A-J
To complete the first section of Schedule C, you’ll need to provide basic information about your business in sections A to J:
- Section A. Describe your business or professional activity here, including the product or service you’re selling.
- Section B. Enter the six-digit code for your business, which you can find by scrolling to the bottom of this IRS page.
- Section C. Enter your business name if you have one.
- Section D. Enter your EIN (Employer ID Number) if you have one.
- Section E. Your business address goes here.
- Section F. Check the box for your accounting method here. If you’re not certain which method you use, you can read more about the different methods here.
- Section G. If you materially participated in your business’s operations, check “yes.” “Material participation” means your involvement in the day-to-day operations or management of your business.
- Section H. Check “yes” if you started or acquired your business during the tax year for which you’re filing.
- Sections I and J. If you made any payments for which you need to file a Form 1099, check the appropriate boxes in each of Sections I and J.
Part I – Income
Schedule C becomes a bit more complicated in Part I. While it’s titled “Income,” it covers your business income rather than employment income (unless you’re an independent contractor who qualifies as a statutory employee).
The following will guide you through some of the less straightforward lines in Part I:
Line 1: Gross receipts or sales
Line 1 states, “Gross receipts or sales. See instructions for Line 1 and check the box if this income was reported to you on Form W-2 and the ‘Statutory employee’ box on that form was checked.”
This means you’ll need to enter the gross income you made from your business here. Gross income doesn’t include any sales taxes. You also won’t be including any refunds in this amount. And if you received any Form 1099-NECs, you’ll need to include the income from these forms.
“Statutory employees” are independent contractors whose clients withheld taxes from their payments. If you received a W-2 with the “statutory employee” box checked, enter the income from that form here. Note that if you operate another business for which you need to file a Schedule C, you’ll need to file a separate Schedule C for that business.
Line 2: Returns and allowances
This line is where you record the total refunds you might have issued, plus any sales allowances. A sales allowance is any reduction in price you gave to a customer instead of issuing a refund.
Line 6: Other income
Line 6 states, “Other income, including federal or state gasoline or fuel tax credit or refund (see instructions).” Enter the total of any amounts you received that you didn’t include in your income in Line 1 or elsewhere in this part. For example, you’d include any monetary awards or prizes your business received and any bad debts you’ve recovered.
Part II – Expenses
Part II is where you record your business expenses. Most of the lines in this section are self-explanatory, but knowing the following lines can be a bit tricky:
Line 9: Car and truck expenses
You have two options when claiming an amount on this line:
- Standard mileage rate. You can only use this option if (a) you own the vehicle and have always used the standard mileage rate when claiming expenses for it, or (b) you’re leasing the vehicle, and you’re using the standard mileage rate for the entire time you’re leasing it.
- Actual operating expenses. When using this option, you’ll include the business portion of your vehicle expenses, such as gas and insurance. If you choose this option, you’ll need to fill out Line 13 (depreciation) and include any lease payments on Line 20a.
No matter which option you choose, it’s important that you have the evidence to support these claims, such as receipts and mileage logs.
Line 12: Depletion
Most small business owners can ignore this line unless they’re in a natural resource business such as mining or timber/lumber. If your business is in this type of industry, you should consult with a tax expert or a tax professional to help you calculate the amount of depletion you can claim.
Line 13: Depreciation
Line 13 reads, “Depreciation and Section 179 expense deduction (not included in Part 3).” A lot of your expenses won’t be depreciated. But if your business owns property such as buildings, equipment or vehicles, you can’t deduct the full cost of your purchase price for that asset in the purchase year. Instead, you must claim depreciation for it over a number of years. Talk to a tax professional if you’re claiming depreciation, as it can get complicated.
Line 18: Office expense
According to the IRS, “office expense” only includes your expenses for office supplies and postage. If you have office expenses that don’t fall within either of these two categories, you’ll need to report them in Part V.
Line 24: Travel and meals
You’ll need to enter the amount you’re claiming for travel on Line 24a and deductible meals on Line 24b.
You can claim amounts for overnight travel expenses that are business-related. For more information, check the IRS’s list of deductible travel expenses.
When claiming business meal expenses, you have the option to:
- Claim an amount based on your actual meal expenses
- Use the standard meal allowance
Line 30: Expenses for the business use of your home
If you’re running your business from home, you can claim a portion of your household expenses, such as heating or electricity, if you meet the IRS’s home office requirements.
There are two options for claiming these expenses. You can either use an amount that’s based on your actual expenses, or you can use the Simplified Method. If you choose the Simplified Method, use the IRS’s Simplified Method Worksheet to calculate the amount of your claim.
If you opt not to use the Simplified Method, you’ll need to fill out Form 8829. You can find instructions for filling out the form here.
Part III – Costs of Goods Sold
If your business involves the sale of goods, you’ll generally be required to keep inventory, although there’s an exception for small business taxpayers. You’ll also need to fill out Part III, which calculates your cost of goods sold.
Line 33: Method(s) used to value closing inventory
If you keep an inventory, you need to check off the method you use to value your closing inventory. There are two main options: the cost method and the lower of cost or market (LCM) method.
The cost method values your inventory at cost—in other words, your purchase price. The LCM method values your inventory at the lower of your purchase cost and the current market value, and it can get complicated. Most small business owners prefer the cost method.
Part IV – Information on Your Vehicle
Remember Line 9? If you claimed an amount on Line 9, you’ll need to fill out Part IV. The questions in this part are straightforward, but you’ll have to provide specific mileage numbers. You’ll also need to keep proper records to support your claim.
Part V – Other Expenses
Part V is for claiming any business expenses that weren’t included on Lines 8-26 or Line 30.
The IRS provides information on what you can include in this section. You can also find detailed information in Publication 535 (Business Expenses).
There are, however, certain expenses you can’t include:
- The costs of business equipment or furniture
- Replacement of, or permanent improvements to property
- Any personal expenses, living expenses or family expenses
- Charitable contributions
- Fines or penalties paid to a government authority
Schedule C Tips
While you need to include a lot of information in Schedule C, most of the information required is straightforward. Here are some tips to keep in mind:
- Multi-member LLCs. You don’t have to file a Schedule C if your LLC is a multi-member LLC. The IRS considers a multi-member LLC to be a partnership, so the normal partnership tax rules apply.
- Stay organized. Staying organized during the current year when it comes to your business records will make it easier for you to file your Schedule C next year.
- Multiple businesses or side gigs. If you run multiple businesses or have a number of side gigs, you will have to file a Schedule C for each gig or type of business.
- Tax experts. Not sure about something related to your taxes, Schedule C or otherwise? It’s always a good idea to consult with an accountant or other tax professional.
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