What is Schedule C?
Schedule C is function of Form 1040. It ’ s used by sole proprietors to let the IRS know how much their business made or lost in the survive class. The IRS uses the information in Schedule C to calculate how much taxable profit you made—and assess any taxes or refunds owing .
You can find the fillable imprint here : IRS Schedule C : profit or Loss From Business
Further reading: Sole Proprietorship Taxes ( A Simple Guide )
Do I need to file Schedule C?
If you are a sole owner, you ’ ll probably need to file Schedule C—and you ’ ll want to file a offprint one for each business if you have more than one .
You’re a sole proprietor if:
- Your business isn’t another legal business entity, such as a corporation or partnership
- You don’t have a boss or manager to report to, who holds back a portion of your salary for taxes
- The primary reason for your business activity is to make money
- You conduct business regularly, and it isn’t just a hobby (more on that below)
- You are a single member LLC that has not elected to be taxed as an S corporation
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How do I fill it out?
here ’ s what Schedule C looks like :
Before you fill it out, you’ll need:
- The IRS’s instructions for Schedule C
- Your SSN (Social Security Number)
- Your EIN (Employer Identification Number)—if you have one
- An income statement for the tax year
- Your balance sheet for the year
- Receipts or statements for any business purchases—including smaller items, like food expenses, and big-ticket items like equipment, cars, or buildings
- An inventory count and valuation (if you sell products)
- Mileage records
Although we ’ re going to walk you through the six sections of Schedule C, you ’ ll still need the official instructions to find the Principal Activity Code for your business .
The lead part of Schedule C international relations and security network ’ thymine labelled numerically, but rather has ten separate lettered boxes : A through J. Most of this is pretty self-explanatory, requiring basic information like your list and occupation savoir-faire. potentially confusing boxes include :
- A-B : In Box A, enroll a brief one-line description about the character of business you ’ rhenium doing, and the relevant code ( found in the IRS instructions ) .
- F : Record your account method acting. normally, small business owners use cash accounting. If you ’ ra not certain which you ’ ra using, check out our guide to the differences between cash and accumulation accountancy .
- thousand : “ Material engagement ” by and large means if you worked in your business. If you did, check “ Yes. ” If you ’ ra uncertain, consult an adept .
- heat content : Check the box if this is your beginning class in business .
- I-J : If you paid subcontractors or individuals $ 600 or more for work in your clientele, you ’ ll need to file Form 1099. If you answer “ Yes ” to I, you must besides answer “ Yes ” to J, and file a 1099 .
- Social Security Number ( SSN ) : You must enter your SSN, even if you use an EIN for business purposes. If you do use an EIN, record it in Box D .
This is where Schedule C starts to look less aboveboard, and more like a tax shape. Lines 3, 5 and 7 can be taken as instructions, but for the lie, here ’ s a immediate translation .
The form says: Gross receipts or sales. See instructions for Line 1 and check the box if this income was reported to you on Form W-2 and the “ statutory employee ” box on that shape was checked .
Translation: Total income, not including sales tax, goes here. This is your crude income—don ’ metric ton subtract refunds or returns .
statutory employees are independent contractors who are treated as employees, meaning their “ employers ” withhold taxes. They besides use Schedule C, which is why they get a reference point here. If you are both a sole owner and a statutory employee, you ’ ll need to fill in two Schedule Cs—one for each function .
If person you worked for mail you a Form 1099-NEC ( alternatively of a Form W-2 ), all that means is that you ’ re not considered an employee for tax purposes. Income from Form 1099-NEC should be included on Line 1 .
The form says: Returns and allowances
Translation: This is where you put the sum amount issued in refunds for the tax year .
The form says: Cost of goods sold ( from Line 42 )
Translation: You need to calculate the monetary value of goods sold, as reported on Line 42 ( in Part 3 of Schedule C ). Put a pin in this one until you get to Line 42, then come back and fill this in .
If you don ’ thyroxine sell goods and you didn ’ thyroxine subcontract any parturiency, enter 0 and move on .
The form says: other income, including union or state gasoline or fuel tax credit or refund ( see instructions )
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Translation: This is where you record any auxiliary income—such as interest from your occupation bank account, grants or awards, and tax credits for fuel. If you don ’ t have any other income, enter the gross income measure from Line 1 .
Pro tip: Throughout the class, you might be tempted to go rampantly with business expenses, because more expenses mean less net profit ( and therefore a lower tax burden ). But you ’ re only going to save 15-30 cents per dollar through expense claims, so don ’ t take on unnecessary expenses equitable for the tax write-off—it international relations and security network ’ deoxythymidine monophosphate worth it .
Most of Part 2 is self-explanatory, requesting the amounts spent on particular business activities—such as advertise, travel, meals, and pension plans. You should be able to find these numbers in your income statement. Below, we dive into the catchy segments .
The form says: Car and hand truck expenses ( see instructions )
What you need to know: If you ’ re using your personal car for business, you have a choice : claim back the demand expenses, or take a mile tax write-off. Whichever you choose, you will have to provide evidence to support your claim. mileage reports will be required for the mile discount and receipts for claiming accurate expenses .
The form says: depletion
What you need to know: Depletion is a recess case, used by businesses in mining, quarrying or timber industries. business owners in these fields can claim a subtraction to account for using up ( depleting ) some of their intersection in the course of business .
There are different rules for calculating depletion, depending on what material resource you are working with. If you plan on claiming a depletion tax write-off, spill to your accountant foremost .
The form says: Depreciation and Section 179 expense deduction ( not included in Part 3 )
What you need to know: normally, you can ’ thyroxine withhold the full buy cost of fixed assets—such as buildings, vehicles, or equipment—in one year. What you can claim is the disparagement tax write-off for that class, over several years. But some assets qualify for the section 179 full discount. This is a complex calculation, so get an accountant or tax professional to take wish of this one for you .
The form says: Office expense
What you need to know: Line 18 is only for postage and agency supplies, such as stationery. early office expenses are reported in Part 5 .
The form says: Expenses for business consumption of your home
What you need to know: many freelancers work from home. That means part of your family bills—like heat and electricity—can be claimed as a business expense. The IRS has a very particular definition of what constitutes a home function, so read the instructions ( C-9 to C-13 ) cautiously to make certain you qualify .
Part 3—Cost of Goods Sold
If you sell products or subcontract, you ’ ll need to fill in Part 3. Most of this section is pretty straightforward, with clearly-labelled requests, such as the cost of materials or supplies. You can find most of this information on your income argument .
Line 33 is the only real outlier. This is where you explain how you valued your inventory. Most belittled businesses will use the Cost method ( literally, the cost of leverage ). If you ’ re using cash report, this is the only way to value your inventory. The other named option is Lower of cost or Market—comparing the price you paid with the marketplace value for the item, on a specific valuation go steady each year. This is far more complicate, less popular method .
Pro tip: When you fill in Line 42, don ’ t forget to go back to Line 4 and enter the lapp numeral .
Part 4—Information on Your Vehicle
Are you claiming expenses for a truck or car ( Line 9 ) ? then you have to fill in Part 4 .
You will need mileage records to make a claim. Don ’ metric ton sample to guess or estimate—you want evidence to back up your expense claim .
Part 5—Other Expenses
just like it says on the human body, this section is for any expenses you didn ’ thymine report on Lines 8-26 or Line 30. Remember to go back to Line 27a and enter the sum of all lines, including anything in Part 5 .
There are a few common mistakes that crop up time and again. Typos in names and Social Security Numbers, mathematics errors, and missing the April 15th deadline are among the easily prevented. however, there are some other misunderstandings besides might trip you up .
“I only need to file one Schedule C”
In the gig economy, many lone proprietors work several freelance jobs. What they might not realize is, you must fill out a separate Schedule C for each clear-cut type of work. For exemplar, if you are in mercenary sales, selling multiple products, each sale is considered “ relate ferment ”, and you only need to file one Schedule C to cover all work of that type. however, if you besides drive an Uber ( presently considered a human body of self-employment in the United States ), you would have to report your profits and losses from that business guess individually .
This besides means keeping separate records for each role—including mileage records, office supplies, and fuel tax credits. If you are a marry couple, each with a distinguish sole proprietorship, you can ’ metric ton file on the same Schedule C—each individual is creditworthy for their own .
Further reading: The Uber & Lyft Driver ’ s Guide to Taxes
“I only earned X amount, so I don’t have to file”
You must report all income and losses from your exclusive proprietorship or single-member LLC by filing Schedule C. There is a minimum doorsill for paying tax on your self-employment income ( $ 400 ) —but no minimum for reporting any personnel casualty or net income on your business .
Unless you are filing Schedule C as a statutory employee, your self-employment income and business income are one and the lapp .
“I lost money, so my business qualifies as a ‘hobby’”
There is a coarse myth that if you don ’ triiodothyronine testify a profit for two out of five years, your business is considered a hobby, and you don ’ t need to file a Schedule C. The accuracy is, it might—but it besides might not.
profit is alone one factor in deciding if you ’ ra running a business or charging for a hobby. Your intention to make a profit, keeping debate records, and the type of business you run, can all sway the IRS into classifying you as a honest-to-god business, not a avocation. If you ’ re in doubt, lecture to a professional to see where you stand .
The lines, letters, numbers and boxes can make Schedule C seem a draw more tax than it actually is ( pun intended ). But once you get going, it ’ s more square than it seems—and, of course, it constantly helps to have organized, accurate records to work with. Once you ’ re done, you won ’ metric ton have to think about Schedule C for a solid year, but feel release to bookmark this guide for future April .