If you are self-employed, it's likely you need to fill out an IRS Schedule C to report how much money you made or lost in your business. Freelancers, contractors, side-giggers and small business owners typically attach this profit or loss schedule to their Form 1040 tax return when filing their taxes.
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IRS Schedule C, Profit or Loss from Business, is a tax form you file with your Form 1040 to report income and expenses for your business. The resulting profit or loss is typically considered self-employment income.
Usually, if you fill out Schedule C you'll also have to fill out Schedule SE, "Self-Employment Tax." You'll use this form to calculate your Social Security and Medicare tax based on your self-employment income and report it on Form 1040, Schedule 2 Part II, Other Taxes.
You'll need to file a Schedule C if you earn income through self-employment as a sole proprietor or as a single-member Limited Liability Company (LLC). You wouldn't use a Schedule C to report business income and expenses of a C Corporation or S corporation.
If you are self-employed, your business clients should send you 1099 forms such as 1099-NEC. These forms report the money that a business has paid you during the tax year. You may also need to send 1099s to any vendors or contractors you have paid through your business. These payments are typically included as expenses on your Schedule C along with your other eligible business expenses.
A sole proprietorship is a business a sole person operates and controls that is not set up as another legal business entity separate from yourself, such as a corporation or partnership. Generally, there's no legal separation between you and your business. You own and run the business by yourself, are entitled to all of the profits, and are responsible for its losses and liabilities. Often, freelancers, gig workers, independent contractors and other small business owners operate as a sole proprietorship.
Even if you just use your lawn mower to cut your neighbors’ grass for $10 per yard on weekends, you’re likely a sole proprietor and need to report your business finances on Schedule C.
You can also operate your own business as a single-member LLC. In that case, you’ll usually still need to complete Schedule C. It doesn't have to be a business with employees or an office, but it can be. If you run a single-member LLC, there’s no distinction between you and the LLC for tax purposes. Instead, whatever profits or losses produced by the LLC go directly onto your personal tax return. The IRS considers this a “Disregarded Entity.”
Regardless of whether you’re a sole proprietor or single-member LLC, the defining factor of both is that you're the boss, and there's no one writing you paychecks or withholding taxes from your pay.
You might be both self-employed and an employee of another business. If you work as an employee with pay reported by your employer on Form W-2, you may also need to file a Schedule C when you have income you earn outside of your W-2 job. You typically should not include your W-2 income with your self-employed income on Schedule C.
You use Schedule C when you are operating a business. If you are making some side money without the intent of running a business and making business profits then it might count as a hobby. In this case your income and expenses aren’t reported on Schedule C. Instead, you typically report the income on Schedule 1, Part I, Additional Income, Line 8, “Other income.” When your activity is considered a hobby, you need to report all of the income but you can't use any of your expenses as tax deductions.
Schedule C asks for several items related to your trade or business. Some of the items include:
For a business expense to be included on Schedule C as a deduction against your income, it must be considered both ordinary and necessary for your business.
For business expenses to be deductible, they need to be both “ordinary” and “necessary.” The IRS considers an expense to be ordinary if it is common and accepted in your industry. For an expense to be considered necessary for your business, it must be one that is helpful and appropriate for your trade or business. An expense doesn't have to be indispensable to be considered necessary.
For example, if you work in an office setting, expenses like office furniture, supplies, software, and computer hardware are likely all ordinary and necessary expenses you’d expect to pay in your line of work.
Schedule C has five parts for reporting income and expenses. Depending on the type of your business, you may not need to complete all of the items in each section.
To fill out your Schedule C, you'll need to gather information related to your business for the tax year. This can include:
Once you’ve gathered this information, you'll proceed through each section of the Schedule C providing the following information in the relevant parts:
Many sole proprietors were able to use a simpler version called Schedule C-EZ. This form omitted a lot of the detail in the full Schedule C and just asked for your total business receipts and expenses. However, you still needed to complete a separate section if you claimed expenses for a vehicle.
You could use Schedule C-EZ only if you operated one sole proprietorship, didn't report more than $5,000 in business expenses, reported a net profit, didn’t hold business inventory during the year, had no employees and didn't claim a deduction for a home office.
Beginning with the 2019 tax year, Schedule C-EZ is no longer available, leaving only Schedule C.
You can download all versions of a Schedule C on the IRS website. You can also use online tax preparation software to access a Schedule C and complete your tax return.
Schedule C is not the same as a W-2. Schedule C reports income earned as a self-employed person either through a sole proprietorship or single-member LLC. W-2s report income you’ve earned as an employee of a business.
You can earn W-2 income and also still report separate income on Schedule C. This usually requires working as a freelancer, independent contractor, at a side gig, or running your own small business. Though, these side incomes will need to come from work you perform regularly and for the expectation of earning a profit, or the income would be considered to come from a hobby and would go on Schedule 1 rather than Schedule C.
A 1099 is not the same as Schedule C. A 1099 typically reports money exchanged between a payor and a payee. A copy of a 1099 usually goes to both the payee and the IRS. Depending on the type of income earned or 1099 received, you may report this on Schedule C or other Schedules of Form 1040.
For example, if you earn income as a freelance video editor, tutor or rideshare driver, and you’re not an employee for this work, this income would likely be reported to you on a Form 1099-NEC and you would typically include this income on Schedule C of your tax return.
However, if you earn income by renting out your property, you will usually report this income on Schedule E. Schedule F is for reporting income from farming.
If you receive a Form 1099-NEC reporting your income earned as a contractor, freelancer or other non-employee job, you'll typically need to report this information on Schedule C. You'll also include all of your eligible business-related expenses in support of your trade or business.
Schedule C information includes profits and losses earned by you as a sole proprietor or single-member LLC. If you only work as an employee and earn money reported on a W-2, you'll typically not complete a Schedule C for your tax return.
If you earn money working for yourself, however, you’ll need to collect all of your 1099 forms from clients along with any other income earned through your business and report the income on Schedule C along with all of your eligible business expenses.
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