Starting a solo business venture this year? Get a head start on next year’s taxes by learning about the Schedule C tax form.
What is a Schedule C tax form?
The Schedule C tax form is used to report profit or loss from an unincorporated business run as a sole proprietor. If you run a qualifying business and had self-employment income, you will need to fill out and then file Schedule C as an add-on to Form 1040 with your income tax return.
For the activity to qualify as a business, the primary goal must be to make income or profit. You must also be involved in the business on a regular, continual basis. You would not use Schedule C to report profit or losses from a hobby.
Other uses for Schedule C include:
- Reporting wages and expenses of a statutory employee
- Disclosing income and deductions for joint ventures
- Detailing certain income on 1099-MISC.
Who has to file a Schedule C tax form?
Schedule C is used by unincorporated businesses that are not treated as separate legal entities under the tax code. Owners of sole proprietorships should report business profit or loss on Schedule C.
Run multiple sole proprietorships? You will need to report income or loss for each business on a separate Schedule C.
Owners of single-member LLCs can also report their income or loss on a Schedule C. So can owners of joint ventures. Each owner would need to fill out a separate Schedule C with his or her portion of the profit or losses.
If you have business expenses of $5,000 or less, you may be able to complete Schedule C-EZ in lieu of Schedule C.
Reporting profit or loss on Schedule C
Part 1. Use this section to calculate and report gross income from the business.
Enter gross receipts in line 1. Subtract from this figure returns and allowances and cost of goods sold. This will get you your gross profit, which you will report on line 5. Add any other income to this figure to get your gross income. Report this figure in line 7.
Part II. Use this section to report net profit or loss after business expenses.
Enter expenses by categories in lines 8-26. Add up the expense categories and report the total in line 28. Calculate your tentative profit by subtracting total expenses from gross income. Report this figure in line 29. If you have incurred expenses for the business use of your home, enter them in step 30. Subtract line 30 from line 29 to get your net profit or loss. Report this figure on line 31.
Part III. Use this section if producing, buying or selling inventory was a factor in income production.
Report the cost of goods sold on line 42.
Part IV: Use this section if you are claiming car or truck expenses on line 9 of Part II of the form.
Enter the date you put the vehicle into use for the business in line 42. Enter the number of miles driven for business use in line 44.
Part V. Use this section to enter ordinary and necessary business expenses not already reported on lines 8-26.
Calculate the total expenses and enter the figure on lines 27a and line 48. For more information, see the IRS’ guide to Schedule C.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.