Schedule C - Profit or Loss for Form 1040

Schedule C for Small Business Taxes

first business tax return, Schedule C
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Schedule C - Profit or Loss from Business is part of the individual income tax return IRS Form 1040. It shows the income of a business for the tax year, as well as deductible expenses. The resulting net profit or loss of the business, found on line 31, is then reported on line 12 of Form 1040. It is also entered on line 2 of Schedule E to determine self-employment taxes

Which Businesses Must File Schedule C?

If you have a business that you own by yourself and it is not registered with your state as a specific type of business entity, you’re a sole proprietor.

Sole proprietors must file Schedule C. You would also file Schedule C if you are the sole owner of a limited liability company or LLC.

Can You Use Schedule C-EZ?

If yours is a very small business with under $5,000 in business expenses, you may be able to use Schedule C-EZ to save time in tax preparation.

Must You File a Separate Schedule C for Each Business You Own?

You must file a separate Schedule C for each business you own, showing the income and deductions from income for that particular business.

How Should You File Schedule C for a Husband/Wife Business?

Typically, two people are considered partners and must file a partnership tax return when they own a business together. But if you and your spouse both actively participate in the day-to-day operations of your business, you may both file separate Schedule C forms. Divide the business income and expenses between you. This type of business is called a “qualified joint venture.”  

Schedule C Changes Effective 2013

The Internal Revenue Service has allowed an alternate simplified method to calculate home office expenses for your Schedule C since 2013. The calculated rate is $5 a square foot up to 300 square feet for a maximum $1,500 deduction. A worksheet is provided and the calculation is entered on line 30 of Schedule C.

A word of warning: you may receive a bigger deduction if you use the original more complicated method of calculation. You have a choice. 

How to Complete Schedule C

You will need the following to complete your Schedule C:

  • profit and loss statement, sometimes called an income statement, for the tax year
  • balance sheet for the tax year
  • Statements relating to the purchase of any assets during the tax year
  • Information on inventory to prepare a cost of goods sold calculation if your business sells products
  • Details on travel and car/truck expenses, meals and entertainment expenses, and home business expenses.

In general, you will first complete the “cost of goods sold” section and calculate gross income. Then you will list your allowable deductions. Deductions are subtracted from gross income to arrive at net income. Read this step-by-step process for Schedule C.

How to File Schedule C

File Schedule C with your Form 1040 after entering your net business income from line 31 of your Schedule C on line 12, "Business Income or Loss." This income is included with all other income sources to determine your total adjusted gross income tax liability.

How to Correct a Mistake on Schedule C

You must file a corrected Schedule C as part of an amended personal tax return, Form 1040X, if you make an error when completing the form. 

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