How it works
Schedule C reports a sole proprietor’s or single-member LLC’s business income and expenses. Net profit flows to Form 1040 and to Schedule SE for self-employment tax. Crypto mining, validator operations, NFT creation, and trading conducted as a business are reported here, with expenses such as electricity, hardware depreciation, and software deductible. Investment activity is reported on Schedule D instead.
Why it matters
The business-versus-investment question changes the tax rate and the deductions available, and the IRS scrutinizes Schedule C losses, especially from activities that never turn a profit.
Example
A miner with 40,000 dollars of coin income and 18,000 dollars of electricity and depreciation reports 22,000 dollars of net profit, owes self-employment tax on it, and deducts half of that tax on Form 1040.
Related: self-employment tax, hobby versus business. Read more: Schedule C guide.
