What Is Schedule C of Form 1040?

Schedule C of Form 1040 Explained

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Definition

Schedule C of Form 1040 is a tax calculation worksheet known as the "Profit or Loss From Business" statement. This is where your self-employed income from the year is entered and tallied and business expenses are deducted to arrive at your taxable income.

Key Takeaways

  • Schedule C of Form 1040 is a tax document that must be filed by those who are self-employed.
  • Self-employment income from the year is entered and tallied on Schedule C, along with any allowable business expenses that can be deducted.
  • Taxpayers who earn income from a business, from freelancing, or from working as independent contractors are considered by the IRS to be self-employed. They must fill out Schedule C of Form 1040.
  • To fill out Schedule C, list information about your business and business income as well as any expenses. Individual items are listed with a space to enter the dollar amounts earned or spent in the income and expenses sections.

How Does Schedule C of Form 1040 Work?

Schedule C of Form 1040 is a tax schedule that must be filed by people who are self-employed. It's a calculation worksheet, the "Profit or Loss From Business" statement. Your self-employment income from the year is entered and tallied here, then carried over to your Form 1040 tax return after any allowable business expenses are deducted. You should attach Schedule C to your Form 1040 tax return when you file and submit it to the IRS during tax season.

Schedule C, Profit or Loss From Business

Who Uses Schedule C of Form 1040?

Businesses that operate as a sole proprietorship or a single-member limited liability company (LLC) must fill out Schedule C of Form 1040. Taxpayers who earn income from a personal business, such as freelancing or independent contracting, are also considered by the IRS to be self-employed.

Note

You don't have to fill out Schedule C of Form 1040 if you only earn income or wages from employment that's reported on Form W-2.

Where To Get Schedule C

You can find Schedule C of Form 1040 on the IRS website or anywhere else where you may find free tax forms. Your tax professional will be able to help you fill out the form correctly if you file your taxes with them. A tax software program will automatically direct you to Schedule C based on your answers to certain questions if you use one to file electronically.

How To Fill Out Schedule C of Form 1040

Filling out the Schedule C form consists of listing information about your business and business income as well as any deductible expenses you've incurred. Individual items are listed in the income and expenses sections with a space to enter the dollar amounts earned or spent. The total is tallied at the end.

What Counts as Business Income?

Technically, business income is anything you earn because you own and operate a business.

"If there is a connection between any income you receive and your business, the income is business income. A connection exists if it is clear that the payment of income would not have been made if you did not have the business," according to the IRS.

Business income includes:

  • Income received for services rendered as an independent contractor, freelancer, or other non-employee position
  • Income received for manufacturing or selling merchandise
  • Income received from government contracts
  • The fair market value of property or services received through bartering

Business income does not include income earned from employment and reported on Form W-2 if you also hold down a regular job. This goes in a separate place on your tax return, even if the job you do for your employer and the work you do on your own are the same. This might be the case with an electrician who works for an electrical contractor but also services their own customers on the weekends.

Note

Many sole proprietors receive 1099-NEC forms from their customers or clients showing exactly how much they were paid by that entity. This information goes on Line 1 of Schedule C.

Reporting Business Expenses

You can subtract your business expenses on Schedule C after you enter the total of your business income. Business expenses are defined as those that are "ordinary and necessary" for conducting your business.

"Ordinary" essentially means that just about everyone else in your line of work also spends money on this same expense. "Necessary" means that the expense was helpful or appropriate to allow you to make money.

You'll need certain tools if you're an electrician, so the cost of these tools is considered a business expense. Likewise, the mileage you drive is a business expense if you drive to customers' homes or places of business to make repairs. You can't make money in your field without first spending it on these things.

If you use a home office exclusively for your business, you can also deduct some expenses. Percentages of your rent or mortgage, utilities, and insurance would count as business expenses, proportionate to the percentage of your home's total square footage that your office area takes up. For example, you're entitled to deduct a business expense of 10% of your home expenses if your home is 2,500 square feet and your office area is 250 square feet, subject to certain rules.

You can also claim expenses like office supplies and equipment. Schedule C lists all your options beginning with Part II of the form. Take time to familiarize yourself with them. Set up your accounting software to use the categories that are relevant to your self-employment. This will make it much easier for you to complete Schedule C at tax time.

Note

Schedule C also includes a Part III for calculating "Cost of Goods Sold." This is for use if your business manufactures items for sale or purchases items for resale. The cost is also deductible from your total business revenues.

How Schedule C and Schedule 1 Work Together

Schedule C will calculate your net business income or loss after you add in all your income and subtract all your allowable expenses. You must report this number on line 3 of Schedule 1, and attach Schedule C. Both schedules will be attached to your Form 1040. You'll then use information from Schedule 1 on Form 1040, on lines 8 and 10.

How To File Schedule C of Form 1040

You can file Schedule C the same way you file the rest of your tax forms, whether you prefer to do so by mail or electronically. Be sure to include any necessary payments with your form if you file by mail. Send it to your state's IRS processing office, postmarked on or before the deadline, which is usually April 15. You can pay online if you e-file your tax return, but be sure to submit it before the deadline.

Frequently Asked Questions (FAQs)

What is the purpose of Schedule C?

The purpose of Schedule C is to report business income earned by LLCs, sole proprietors, freelancers, and independent contractors.

What is depletion on Schedule C?

Line 12 on Schedule C is for depletion, which is when you use up natural resources through extraction from a mineral property. You may be able to account for the decrease in a mineral property's value if you mine, drill, quarry stone, or cut wood. The value of the property is reduced when the natural resource is depleted and you can account for the reduction on Schedule C.


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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)."

  2. IRS. "Schedule C (Form 1040)."

  3. IRS. "Topic No. 407 Business Income."

  4. IRS. "Topic No. 509 Business Use of Home."

  5. IRS. "Publication 535, Business Expenses."

  6. IRS. "Schedule 1."

  7. IRS. "Form 1040."

  8. IRS. "Topic No. 301: When, How, and Where To File."

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