Introduction

Taxes can be a bit confusing. That’s where this guide comes in. We’ll break down what a Schedule C is, who needs to file one, and how to fill out the form.

What is Schedule C: Business Profit or Loss (Form 1040)?

It’s a form you use to report your business income and expenses.

Schedule C reports income and expenses for sole proprietorships, LLCs, and partnerships. If you are beginning a new business or have recently turned your hobby into a small side hustle, this Schedule will be vital to you.

If you work as an employee rather than being self-employed (i.e., you get paid by someone else), then you don’t need to worry about Schedule C.

Instead, your taxes will be calculated on Form 1040 using the wage income from your W2 earnings.

Who files a Schedule C tax form?

You can file a Schedule C tax form if you are:

• a sole proprietor (a single individual who owns and operates a business)
• partnerships, LLCs, or S corporations
• an estate or trust

What is a sole proprietorship?

It is a business that is owned by one person, and the owner is personally liable for the company’s debts and other obligations.

For instance, if you own hardware, you’re both the owner of that business and its employee.

The IRS considers this form of income as self-employment income rather than wages from an employer because you’re responsible for all aspects of running your business: accounting, marketing/advertising, purchasing products to sell at your store, hiring employees (if necessary), etc.

Does an LLC file a Schedule C?

An LLC is a business program, which means it can file a Schedule C. If you are an LLC owner and are doing work for your company, then you need to report all of your income, deductions, and credits on your tax return (Form 1040).

The same is true if another member of the LLC has ownership in the company but does not actively participate in managing or operating it.

Is Schedule C only for self-employed?

If you’re a full-time freelancer, then yes, Schedule C is your proper form. But here’s what you need to know:

Schedule C can also be used if your business has a side hustle or another income source (like eBay sales or Etsy shop).

The IRS estimates that 30% of small businesses are not by self-employed individuals but rather by “miscellaneous” taxpayers such as independent contractors and other non-employee workers.

As an example, let’s say that Dave runs an auto repair shop out of his garage and does light repairs for neighbors on the weekends after work.

Since this is more than just a hobby for him, and he does earn some money from these services (however small), it would be appropriate for him to file Schedule C instead of Form 1040A or Form 1040EZ.

What info is on Schedule C?

The Schedule C is the form you use to report your business income and expenses. You must keep good records of your business income and costs to fill out your 1040 tax return accurately.

The following will assist you in understanding what is on Schedule C:

Gross income is the total amount of money or other property that comes into your business before any expenses are deducted.

For example, if a customer pays $500 for an order of books from you, this amount should be listed as gross income on line 1b of Form 1040 (PDF).

Deductions are the allowable deductions from gross income to arrive at taxable profit or loss from self-employment activities (i.e., freelancing).

These deductions include wages paid to employees, payments made for tools used in the trade or business, costs incurred while earning rental income through subletting space in an apartment building, etc.

What are ordinary and necessary expenses?

The law clarifies what is and isn’t an ordinary and necessary expense. Generally, any payment you pay while earning your income is considered essential. An everyday item (like toilet paper) is not a necessary deduction.

An example of ordinary and necessary business expenses would be the cost of travel between two cities to meet with clients or customers as part of your job.

A non-business-related trip will not be deductible unless it involves a long-distance move for work purposes or meets specific requirements outlined in IRS publication 463 (Travel, Entertainment, Gift, and Car Expenses).

There are some other exceptions to this rule; however, they’re beyond the scope of this article, so we’ll focus on business-related travel expenses.

How should the Schedule C form be completed?

The first step to completing Schedule C is to gather your information. You’ll need to know the name and address of your business, as well as its legal form (sole proprietorship, partnership, or corporation).

For each type of business entity you use, you’ll also need its EIN or tax ID number.

If you are completing a Schedule C-EZ instead of a regular Schedule C, then all you need is your name and address before mailing it in.

Using Schedule C-EZ instead

If you’re a small-scale business owner, you can use the shorter Schedule C-EZ instead of Schedule C if:

• Your gross receipts are $25,000 or less.
• You had no employees (other than your spouse) during the year.
• You aren’t claiming any home office expenses on your main form 1040 return.

If you qualify for this option, then use it! The simplified form is easy to complete and will save time and effort when filing your taxes.

How do I get a Schedule C?

If you’re looking for a Schedule C, the first thing to do is find one. Afterwards, you’ll need to complete and file Form 1040 with IRS. That’s where the real work begins.

If you want your Schedule C immediately and don’t want to wait in line at the post office, visit any of these locations:

• UPS Store
• FedEx Office
• Staples

Is Schedule C the same as a W-2?

NO, Schedule C is NOT the same thing as a W-2. A W-2 is used to report income from employment. In other words, if you are an employee (who gets paid by your employer), you will receive a W-2.

If you are self-employed and have earned money from your business, then you must submit Schedule C and your 1040 tax return.

If you are interested in studying more about what goes into completing Form 1040 and other tax forms, I highly recommend checking out this guide from TurboTax that breaks down each section of the form.

Is Schedule C the same as 1099?

No. Schedule C is the form used to report income or loss from your business. It’s filed by sole proprietorships, LLCs, partnerships, corporations, and estates.

Yes. If you’re an independent contractor who earned more than $600 in a year from one company (or several companies), you’ll receive a 1099-Misc for that job.

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

If you are self-employed, then yes. If you are a worker and receive a 1099-MISC for your services, you will list the income on Line 7 of Form W-2.

If you are self-employed and receive a 1099 from an independent contractor or third-party lender, it would appear on Schedule C and any other earnings from your business.

Schedule Cs are for self-employed people.

If you’re self-employed and have a business or work for yourself in any other way, your tax return will likely be a Schedule C.

If this is the case, your taxable business income will be reported on this form, and you’ll also include any expenses related to your business.

Schedule Cs are also used by independent contractors who are not employees of another company. Sole proprietorships (people who own businesses as individuals), partnerships (businesses run jointly by two or more people).

LLCs (limited liability companies) and corporations must file Schedule Cs with their returns if they report income from self-employment activities such as contract work or renting out property on Airbnb.

At a high level, Schedule C is essential to understand as it directly impacts your tax liability.

Schedule C is the form of reporting a business’s profit or loss. It’s pretty essential to understand because it has a direct impact on your tax liability.

Schedule C is the most common form used to report business income. Suppose you’re self-employed and have a small unincorporated business (meaning no employees). In that case, you’ll use this form to write all of your revenue and expenses related to that business on one document instead of having several copies with different schedules (like W2, 1099).

You can also use schedule C if you’re an independent contractor or sole proprietor with elected S corporation status for their LLC or partnership.

Conclusion

Schedule C is an essential part of your tax return and is required for anyone who earns self-employment income.

It’s essential to understand what it is, how it works, and the different parts of this form to ensure you are filing correctly and getting all deductions available to you.

We’ve covered some basic information here so that we’re here when you need more specific help with filling out your Schedule C form or any other tax question related to self-employment income (or anything else).