April 3, 2024

Small business owners, freelancers, gig workers, independent contractors, or individuals with self-employment income are the ones who will most probably need to fill out a Schedule C when they file their IRS 1040 form. If you are one of them, here’s what you need to know about this tax form. 

What is Schedule C IRS form? 

Schedule C is used to report income or loss from your business activities or profession practiced as a sole proprietor. It provides a detailed breakdown of the financial outcome of your business over a tax year. 

The Internal Revenue Service (IRS) defines business activity as engaging in activities with continuity and regularity with the primary purpose of generating income or profit. Income from nonbusiness activities such as hobbies or not-for-profit activities are reported separately in IRS 1040 Schedule 1, line 8 as Other Income.  

A significant difference between business and nonbusiness activities is that you cannot claim tax deductions for your non-business activities. 

Who needs to file a Schedule C? 

  • Sole Proprietorship is an unincorporated business entity that is owned and operated by one person. Small business owners and self-employed individuals such as freelancers, gig workers, or independent contractors commonly choose to perform their trade or profession under this business entity due to its simplicity. Such individuals will need to file a Schedule C to report their self-employment income. 
  • Single Member Limited Liability Company (LLC) is like sole proprietorship in which it has one owner but with limited liability protection. However, LLCs who elected to be an S-Corp are not required to file a Schedule C. 

You may also have to file a Schedule C in cases where you received any of the following: 

  • wages and expenses as a statutory employee, 
  • income and deductions from certain qualified joint ventures,  
  • certain incomer reported on 1099 Forms such as MISC, NEC, and K 

Are W2 employees exempt from filing a Schedule C? 

If you receive income solely from your regular employment, you will not have to file a Schedule C. However, W2 employees who also engaged in freelancing or side gigs will need to file a Schedule C to report their self-employment income during the tax year. If your side income is from farming or rental, you will have to report them in a Schedule F or Schedule E, respectively. 

How to Fill-Out a Schedule C form? 

The Schedule C form requires information about your business such as its name, address, Employer ID Number (EIN), accounting method, your material participation in business operation, if it started during the tax year, and some 1099 filing-related questions. 

It is then divided into five (5) parts to report your business income. Depending on the nature of your business, you may or may not need to complete all parts. 

Part I Income – computes for your gross income by reporting all your gross sales and receipts contra your cost of goods sold. 

Part II Expenses – is where you report your business expenses during the tax year such as advertising, insurance, rental, travel, interests, utilities, home office expenses etc. Once you figure your total expenses, deduct from the gross income to compute for your business net income or loss. 

Part III Cost of Goods Sold – if it applies to your business, complete this section to compute for your cost of goods sold. It needs information on your cost of labor, materials, and inventory. 

Part IV Information on Your Vehicle – requires detailed information about the vehicle you use for your business. 

Part V Other Expenses – is where you report other deductible expenses not covered by Part 2. 

Remember, if you have several qualified businesses or sources of self-employment income, you must fill out a Schedule C form for each one of your businesses or side gigs. 

Want to learn more? 

You may want to consult and work with 1099 Accountant – We offer online bookkeeping, online advisory services and online tax and accounting services. We offer reasonable rates. We only work with independent contractors, freelancers, and one-person business. We work with locum tenens from California to New York City and everywhere in between. Yes, even Hawaii! 

Contact us toll-free (855)529-1099 or make an appointment for a free consultation. Contact Us


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