Taking the plunge to start your own business is exciting, but tax filing—including Schedule C—can be confusing. You are your own boss, which means setting your own schedule and making important business decisions. Unfortunately, being a business owner also means reporting your activity to the IRS.
Unlike employees who receive Form W-2s from their employers, sole proprietorships self-report their income to the IRS using Schedule C, Profit or Loss From Business.
Never filled out this form or have questions about it? No problem. Our guide will go through all the important things you need to know about filling out a Schedule C.
If you started your business this year and are feeling overwhelmed with tax obligations, enlisting the help of a tax professional is a smart idea. Gordon Law can prepare your tax return accurately and timely so you can focus on the exciting part of operating a business.
What is Schedule C?
Schedule C is for self-employed individuals report profits and losses from their business. The form is a part of the individual tax return, so the net income or loss gets added to your Form 1040.
Sole proprietors report the following information on this form:
- Basic information about the business
- Gross business income
- Ordinary and necessary business expenses
Who Files Schedule C?
Schedule C is for self-employed individuals, gig workers, freelancers, and independent contractors—anyone who has pass-through, or flow-through, income. This typically includes single-member LLCs, sole proprietorships, and S-corps.
Pro Tip: You don’t need to have an “official” (i.e., registered) business in order to use this tax form. If you’re the sole business owner and you haven’t registered the business, it will be taxed as a sole proprietorship.
How to Fill Out Schedule C
So, how do you fill out Schedule C? The IRS website has specific instructions for taxpayers to reference. We’ll go through some general instructions for completing the form below.
If you have more than one business, be sure to complete a separate Schedule C for each one.
Basic Information
The first part of Schedule C asks for basic information about your business. This includes the following information:
- Principal business and business code (see the IRS list of codes here)
- EIN (if you have one)
- Business name (if you have one, otherwise leave blank)
- Business address, which can be your home address
- Selections about accounting method, material participation, and Form 1099
Income
Following the basic information section is the income section. This is where you report gross receipts or sales from your business. If you received Form 1099-NEC for contracting services, you will enter this amount here.
If your business holds or sells inventory, in this section you must reconcile information regarding returns and allowances and the cost of goods sold.
What are returns and allowances? Returns are simply refunds to customers, and allowances are reductions in the sale price of something instead of a refund. These amounts are reported as a positive number on line 2 of the income section.
Expenses
Perhaps the most involved section of Schedule C is the expenses. The golden rule for claiming business expenses is that an amount must be ordinary and necessary to deduct it against income. Claiming amounts outside these rules is a red flag to the IRS.
Some common expenses to deduct include:
- Advertising
- Payments to contractors
- Legal and professional fees
- Supplies
- Travel
- Meals (subject to certain limits and rules)
- Depreciation for cost of business assets like laptops
Self-employed individuals can also claim a deduction if they have a home office or use their vehicle for business purposes. Be careful, though. There are strict rules for the home office deduction and additional information you need to include for both of these deductions.
Remember! You don’t need to send receipts to the IRS, but you do need to retain them in the event the IRS asks for them. You must keep your records for at least 3 years, but it’s wise to keep them for 6 years.
When is Schedule C Due?
Since Schedule C is included with your individual tax return (Form 1040), for most taxpayers, it is due April 15th.
Learn more about self-employed tax filing here.
Need Help with Your Schedule C?
If you were too busy this year running your business and didn’t have the time to keep track of your business expenses, you may need help filling out your Schedule C.
Gordon Law is here to help with both your business and personal tax returns. Having a tax professional prepare your tax return can save you time, money, and a great deal of stress. Reach out today for a free assessment.
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