Schedule C (IRS Form 1040): What It Is and How To File It (2024)

9 Min. Read

June 10, 2024

Schedule C is an IRS tax form used to report income and losses for self-employed people or sole proprietors. It’s a part of your individual tax return, so the Schedule C form is attached to your 1040 income tax return.

If you’re self-employed, you most likely need to fill out and file Schedule C to report income and losses for the tax year to ensure you comply with the IRS rules. This goes for all sole proprietors, including freelancers, single-member LLCs, contractors, and people who work a side gig.

In this guide, we’ll go over everything you need to know about the IRS tax form Schedule C, including how to fill it out, how to know if you’re required to file it, and some useful resources to make tax time faster and simpler for sole proprietors.

Key Takeaways

• IRS Form Schedule C, Profit or Loss from Business, is used to report income and expenses from self-employment.
• Freelancers, independent contractors, side gig workers, single-member LLCs, and sole proprietorships must file Schedule C.
• Schedule C is filed alongside your individual income tax return, attached to IRS Form 1040.
• Using expense tracking software throughout the year can save you money on income taxes when you claim them on Schedule C.

Table of Contents

• What Is a Schedule C?
• Who Needs to File a Schedule C Tax Form?
• What Information Does a Schedule C Contain?
• When To File Schedule C Tax Form?
• How To Fill Out a Schedule C Form
• Can Only Self-Employed People File Schedule C?
• Schedule C Made Simple: Navigate Taxes Effortlessly with Freshbooks
• Frequently Asked Questions

What Is a Schedule C?

IRS Schedule C, Profit or Loss from Business, is a tax form used to report income and losses for a self-employed business. It’s filed alongside Form 1040, one of the primary income tax return forms.

Those who file Schedule C probably also need to file Schedule SE (“Self Employment Tax”). This form lets you calculate your Social Security and Medicare tax liability. It’s based on your yearly, untaxed income as a self-employed person or sole proprietor.

Who Needs to File a Schedule C Tax Form?

It’s sometimes hard to know which tax forms you’re required to fill out, so let’s break it down for this self-employment form. People must report income on Schedule C as an individual if they are:

• Small business owners
• Working a side gig in addition to a paid, regular job
• Doing freelance work (either full or part-time)
• An independent contractor
• Receiving untaxed self-employment income from another source

In addition to certain individuals needing to file a Schedule C, the form might be required to be filed by 3 types of business structures:

• Sole Proprietorships – Unincorporated, “pass-through” entity businesses owned and run by 1 person who is entitled to all business profits and responsible for all losses/liabilities
  • (e.g., most independent contractors, freelancers, and other single-person businesses)

• Single-Member Limited Liability Companies (LLCs) – A business fully owned by 1 person who has not made an election with the IRS to be treated as a corporation for tax purposes, and therefore cannot file a corporation tax return
• LLCs Owned by Spouses in a Community State – These returns can be filed as a Schedule C instead of a regular partnership tax return.

Small business owners must complete a separate Schedule C form for each eligible business they own. However, if your business is a C corporation or S corporation, Schedule C does not apply.

Generally, you probably need to file Schedule C if you do anything that generates profits that aren’t already taxed. The major exceptions are for farming (you’ll need a Schedule F) or businesses involving royalties or rental income (Schedule E).

What Information Does a Schedule C Contain?

Once you’ve determined that you need to file IRS form Schedule C, you need to know what information it needs to contain. Your Schedule C must contain the following information:

• Business name and address
• Employer Identification Number (EIN—not the same as your Social Security number) if you have it
• The main products, services, or professions that your business offers
• Accounting method you use for tax purposes (e.g., cash, accrual, etc.)
• Details of your material participation in the business
• Information on whether or not you acquired/founded the business during the current tax year
• Detailed income and profits information
• Itemized expense reporting (including inventory, advertising, insurance, professional services, wages, rent, and more) for tax deductions
• Inventory records
• Cost of goods sold (COGS—if applicable to your business)
• Business mileage records, car and truck expenses, vehicle records (if applicable)
• Other expenses not categorized above

You’ll also have to provide the bottom line for the tax year—your net profit or loss for that business. Deducting your total business expenses from your gross receipts gives your net profit or loss. Schedule C is where you calculate this information. Any net profit is then reported to the IRS as income on your 1040 income tax form.

Keeping detailed records of your business activity is the key for every self-employed person. Using online accounting software can help you with some of the necessary information required to file taxes. It takes just a few clicks to find, gather, and input this essential information.

When To File Schedule C Tax Form?

Knowing when to file Schedule C will depend on the structure of your business. It’s required to be filed alongside your individual tax return, which is typically done annually. Sole proprietors and single-member LLCs must file Schedule C (along with everything else for your individual return) by April 15th.

How To Fill Out a Schedule C Form

You’ll need to understand the steps to filling out your Schedule C form to ensure accuracy and compliance. The Schedule C form has 5 main sections:

1. Income

Tally your sales and report the cost of goods sold, showing your gross income. Use your financial statements from the past year to determine your gross self-employment income for your Schedule C form.

2. Business Expenses

There are 12 categories of deductible business expenses to help you reduce your tax liability. These include, but aren’t limited to:

• Legal and professional services
• Advertising
• Home office expenses

The IRS stipulates that expenses must be considered “ordinary” and “necessary” for the operation of your type of business in order to be deducted. Deducting the total amount of these expenses from your gross profit gives your net profit. This is the business income or loss figure that goes on Schedule 1 of your personal tax return. If you’ve made a net loss this year, it might be deductible on your 1040.

3. Cost of Goods Sold

This section helps calculate your cost of goods sold (COGS), if applicable to your business. It typically doesn’t apply if you’re a service-based business, but is necessary if you sell any type of product.

4. Vehicle Information

If you require a vehicle to operate your business, you’ll need to provide mileage tracking records and other proof of ordinary and necessary vehicle-related expenses.

5. Other Expenses

This category is for any miscellaneous business-related expenses that don’t fit into the categories in part 2. Remember, to be considered a business expense for tax purposes, a business expense “must be both ordinary and necessary”.

Can Only Self-Employed People File Schedule C?

Schedule C is primarily for self-employed people, such as freelancers, independent contractors, or people with side gigs that they actively work on (essentially, anything more than a slightly profitable hobby). It’s a method of reporting income and tax liability for profits that are not already taxed—so you wouldn’t file a Schedule C form for employment income, since it’s already taxed when you receive it.

If you earn money through any other means besides employment (i.e., working for yourself), you’ll probably need to file a Schedule C form. This means collecting all 1099 forms from your clients (if applicable) and detailing all other income you made with your business for that tax year.

As mentioned above, certain small businesses may also be required to declare their income and expenses on IRS form Schedule C. This applies to single-member LLCs and sole proprietorships.

Schedule C Made Simple: Navigate Taxes Effortlessly with Freshbooks

Tax time can be daunting for sole proprietors—especially when you’re new to the process. But as you can see, Schedule C is fairly straightforward, particularly if you set yourself up for success with an online tool for tax prep and organization like FreshBooks expense tracking software. FreshBooks makes tracking and categorizing business expenses throughout the year simple, helping you accurately file Schedule C at tax time.

Looking for help with business taxes this year? Many sole proprietors use FreshBooks accounting software to save time, money, and hassle when it’s time to file taxes. Try FreshBooks for free today.

FAQs About Schedule C

Still wondering about the details of filling out and filing form Schedule C? Here are a few answers to frequently asked questions on this form:

What is the minimum income to file Schedule C?

There is no minimum income threshold for filing Schedule C. You must report all business income and expenses on your Schedule C, no matter how much or how little you make.

If you make less than $400, you don’t need to file Schedule SE or pay self-employment tax, but Schedule C is still required.

What’s the difference between Schedule 1 and Schedule C?

Schedule C is used to report self-employment income and expenses, while Schedule 1 reports net income from all sources. Schedule 1 will report income from sources like capital gains, unemployment benefits, alimony, or income adjustments like student loan interest.

Do I need to file a Schedule C for 1099-NEC?

If you receive a 1099-NEC form for providing services, you may be required to file a Schedule C, even if you don’t have a business. This goes for all non-employment income, even if it’s a small piece of paid work on the side of your regular job.

How do I prove my Schedule C income?

You’ll need to be prepared to provide proof of your income reported on form Schedule C. This can include 1099 forms from your clients, bank statements, profit-and-loss statements, and possibly self-employed pay stubs you create for your own records.

What is the benefit of Schedule C?

The potential benefit of Schedule C is for sole proprietors to maximize their deductible expenses to minimize their tax liability. Of course, deductions are deducted from your profits, but you’ll generally save more money by thoroughly completing the deductions section of your form Schedule C.

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