Schedule C on Form 1040 is a tax document that must be filed by people who are self-employed. It is a calculation worksheet known as the "Profit or Loss From Business" statement. This is where self-employed income from the year is entered and tallied, and any allowable business expenses are deducted.
If you are self-employed, it's important to understand Schedule C and Form 1040 so you ensure that you are accurately representing your business activities, income, and expenses to the IRS.
What Is Schedule C on Form 1040?
Schedule C on Form 1040 is a tax schedule that must be filed by people who are self-employed. It is a calculation worksheet known as the "Profit or Loss From Business" statement. This is where self-employed income from the year is entered and tallied, and any allowable business expenses are deducted.
Who Uses Schedule C on Form 1040?
Businesses that operate as a sole proprietorship or a single-member limited liability company (LLC) must fill out Schedule C on Form 1040. Additionally, taxpayers who earn income from a personal business (e.g., from freelancing or independent contracting) are considered by the IRS to be self-employed.
If you only earn income or wages from employment that is reported on Form W-2, you don't need to fill out Schedule C on Form 1040.
Where to Get a 1040 Form with Schedule C
You can find Schedule C on Form 1040 on the IRS website or anywhere else you may find free tax forms. If you file your taxes with an accountant, they will be able to help you fill out the form correctly. If you file electronically with a tax software program, it will automatically direct you to Schedule C based on your answers to certain questions.
How to Fill Out Schedule C on Form 1040
Filling out the Schedule C form consists of listing information about your business and business income as well as any expenses. In the income and expenses sections, individual items are listed with a space to enter the dollar amounts earned or spent. The total is tallied at the end.
What Counts as Business Income?
Technically, business income is anything you earn because you own and operate a business. The IRS explains it this way:
"If there is a connection between any income you receive and your business, the income is business income. A connection exists if it is clear that the payment of income would not have been made if you did not have the business."
Business income includes:
- Income received for services rendered as an independent contractor, freelancer, or other non-employee position
- Income received for manufacturing or selling merchandise
- Income received from government contracts
- The fair market value of property or services received through bartering
Business income does not include income earned from employment and reported on Form W-2 if you also hold down a regular job. This goes in a separate place on your tax return, even if the job you do for your employer and the work you do on your own is the same. For example, an electrician who works for an electrical contractor but also services their own customers on the weekends.
Many sole proprietors receive 1099-NEC forms from their customers or clients showing exactly how much they were paid by that entity. This information goes Line 1 of Schedule C. Prior to 2020, form 1099-MISC was used instead.
Reporting Business Expenses
You can subtract your business expenses on Schedule C after you enter the total of your business income. These are defined as expenses that are "ordinary and necessary" for conducting your business.
"Ordinary" essentially means that just about everyone else in your line of business also spends on this same expense. "Necessary" means that the expense was helpful or appropriate to allow you to make money.
If you're an electrician, for example, you'll need certain tools. Their cost is a business expense. Likewise, your mileage is a business expense if you drive to customers' homes or places of business to repair their computer systems. You can't make money in your field without first spending it on these things.
Here's another example. Say you use a home office exclusively for your consulting business. Percentages of your rent or mortgage, utilities, and insurance would count as business expenses, proportionate to your home's total square footage that your office area takes up. You're entitled to deduct a business expense of 10% of your home expenses—subject to certain rules—if your home is 2,500 square feet, and your office area is 250 square feet.
You can also claim things like office supplies and equipment as business expenses. Schedule C lists all of your options, beginning with Part II on the form. Take time to familiarize yourself with them and to set up your accounting software to use the categories that are relevant to your self-employment. This will make it much easier for you to complete Schedule C at tax time.
Schedule C also includes Part III for calculating "Cost of Goods Sold." This is for use if your business manufactures items for sale or purchases items for resale. The cost is also deductible from your total business revenues.
Entering Your Schedule C Total
Schedule C will calculate your net business income or loss after you add in all of your income and subtract all of your expenses. You must report this number on line 10 of Schedule 1 (Schedule 1 accompanies your Form 1040 tax return). You'll then add the total income you arrive at by completing Schedule 1 on line 8 of your Form 1040.
How to File Schedule C on Form 1040
You can file Form 1040 and Schedule C the same way you file the rest of your tax forms, whether you prefer to do so by mail or electronically. If you file by mail, be sure to include any necessary payments with your form. Send it to your state's IRS processing office, postmarked on or before the deadline, which is usually April 15. If you e-file your taxes, you can pay online, but be sure to submit before the deadline.
- Schedule C on Form 1040 is a tax document that must be filed by people who are self-employed. This is where self-employed income from the year is entered and tallied, and any allowable business expenses are deducted.
- Taxpayers who earn income from a business, from freelancing, or from working as independent contractors are considered by the IRS to be self-employed and must fill out Schedule C on Form 1040.
- Filling out the Schedule C form consists of listing information about your business and business income as well as any expenses. In the income and expenses sections, individual items are listed with a space to enter the dollar amounts earned or spent.