All about Schedule C from Form 1040

If you're self-employed, you'll probably need to complete an IRS Schedule C to declare your business's profits or losses. Freelancers, contractors, side-jiggers, and small business owners usually append this schedule to their Form 1040 tax return during tax filing.

>> Frequently Asked Questions

What is Schedule C?

IRS Schedule C, titled 'Profit or Loss from Business,' is a tax document filed alongside Form 1040 to declare the income and expenses of your business. The net result, whether profit or loss, is generally treated as self-employment income.

Typically, completing Schedule C necessitates also filling out Schedule SE, known as 'Self-Employment Tax.' This form is used to determine the Social Security and Medicare taxes due on your self-employment earnings and to record them on Form 1040, Schedule 2, Part II, under 'Other Taxes.'

Who files a Schedule C tax form?

If you generate income through self-employment as a sole proprietor or as a single-member Limited Liability Company (LLC), you will need to file a Schedule C. However, a Schedule C is not used to report the business income and expenses of a C Corporation or S Corporation.

As a self-employed individual, you should receive 1099 forms, such as the 1099-NEC, from your business clients. These forms detail the money paid to you by a business during the tax year. Additionally, you may need to issue 1099s to any vendors or contractors to whom you have made payments through your business. These payments are generally recorded as expenses on your Schedule C, along with other eligible business expenses.

Does an LLC file a Schedule C?

You can operate your own business as a single-member LLC, which typically requires completing Schedule C. This doesn't necessitate having employees or an office, although it's possible. As a single-member LLC, you and the LLC are the same entity for tax purposes, meaning all profits or losses of the LLC are reported on your personal tax return. The IRS classifies this as a "Disregarded Entity."

Whether you're a sole proprietor or a single-member LLC, the common denominator is that you are in charge, with no one issuing paychecks to you or withholding taxes from your earnings.

Is Schedule C the same as a W-2?

Schedule C is distinct from a W-2. Schedule C details income earned from self-employment, such as through a sole proprietorship or a single-member LLC, while W-2s detail income earned as an employee of a company.

It's possible to earn W-2 income and also report additional income on Schedule C. This typically involves working as a freelancer, or independent contractor, engaging in a side job, or operating a small business. However, this additional income must stem from regular work done to make a profit; otherwise, it would be classified as hobby income and reported on Schedule 1, not Schedule C.

What info is on Schedule C?

Schedule C requires information on various aspects of your trade or business. These items encompass:

• Business name and address
• Principal product, service, or profession offered by your business
• Accounting method used for your business (cash, accrual, or other)
• Whether or not you have materially participated in the business
• If you started or acquired the business during the current tax year
• Detailed reporting of your income
• Itemized reporting of your business expenses, including items like advertising, insurance, legal and professional services; rent or lease payments, repairs and maintenance expenses, utilities, wages, and more
• Information about cost of goods sold used in your business (if applicable)
• Details about vehicles used in your business (if applicable)
• Other expenses are not easily categorized by the fields provided within the form.

How do you fill out the Schedule C form?

Schedule C comprises five sections for documenting income and expenses. The sections you need to complete will vary based on your business type.

To fill out your Schedule C, you'll need to gather information related to your business for the tax year. This can include:

• Your business' income for the tax year
• Receipts or lists of your business expenses
• Inventory information including detailed costs (if applicable to your business)
• Mileage records and expenses for the business use of your vehicle

After collecting this information, you will go through each section of Schedule C and provide the necessary details in the corresponding parts:

• In Part I, you list all the income from your business and calculate your gross income.
• In Part II, you add up all of your expenses and subtract them from gross income to determine your net profit or net loss. This is the figure you report on your income tax return.
• In Part III, you calculate your cost of goods sold if applicable to your business.
• Part IV asks for information about a vehicle you used in your business.
• Part V is for any other eligible expenses not listed in Part II.

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Frequently Asked Questions for this Schedule C

How do I get a Schedule C?

All versions of Schedule C are available for download on the IRS website. Additionally, online tax preparation software provides access to Schedule C, allowing you to complete your tax return.

Do I report my 1099-NEC income on Schedule C?

Receiving a Form 1099-NEC for income earned as a contractor, freelancer, or in another non-employee capacity typically requires you to report this income on Schedule C. Additionally, you should include all eligible business-related expenses to support your trade or business.

Schedule Cs are for self-employed people

Schedule C details the profits and losses from a sole proprietorship or a single-member LLC. Employees who receive a W-2 typically do not need to fill out a Schedule C. However, if you're self-employed, you must gather all your 1099 forms and any additional business income to report on Schedule C, along with all eligible business expenses.