What is Schedule C, and who needs to file one?

If you operate your own business as a self-employed individual, freelancer, or solopreneur, you know how important understanding tax forms are. Schedule C is a form that nearly every self-employed business owner will touch during tax time.

This document allows you to report income, deductions, profits, and losses for your business activities. It also helps calculate your self-employment tax. Let’s look at what a Schedule C is, how to fill it out, and tips for maximizing your Schedule C deductions:

How a ‌Schedule C works 

The Schedule C tax form, also known as a self-employment expense form, is a requirement for self-employed individuals. These are generally individuals operating as sole proprietors or have single-member LLCs. This means freelancers, independent contractors, solopreneurs, and individuals with side gigs must complete and file a Schedule C. 

If you are self-employed, you’ll likely receive a Form 1099-NEC. Unlike Schedule C, the 1099-NEC form does not determine profit or loss but simply reports the income you earn:

For example, if you are a freelancer and work for various clients you may receive a 1099-NEC form from each of them. You’ll then include the income from these tax forms as revenue on your Schedule C.

On Schedule C, you report all revenue from your business activities. You can then subtract eligible business expenses to calculate your net profit. Once you have your net profit figure from Schedule C, you’ll include it on your Form 1040 (personal income tax return) and pay the necessary taxes on the income.

Who has to file a Schedule C?  

Schedule C taxes are relevant for those who earn self-employment income, whether full-time or part-time or as a gig or side hustle.

By completing a Schedule C, individuals can claim various business expenses, such as office supplies and advertising costs. This will ultimately reduce your taxable income and ensure compliance with IRS regulations.

Here are some common examples of individuals who typically file a Schedule C:

• Independent contractors and freelancers: Individuals who provide services to clients or businesses in various fields, such as writers and graphic designers. 
• Solopreneurs and small business owners: Individuals who operate as sole proprietors or single-member LLCs, such as online stores and service providers.
• Gig workers: Workers in the gig economy who earn income from platforms like ride-sharing or food delivery services. 
• Professional service providers: Professionals such as doctors, lawyers, accountants, and therapists who are in private practice and the sole owner of their business. 
• Artists and creatives: Artists, musicians, photographers, and other creative professionals who earn income from their artistic endeavors.
• Tradespeople: Skilled tradespeople like plumbers, electricians, carpenters, and construction contractors who operate are the sole owners of their businesses.

These individuals are responsible for reporting their business income and expenses accurately on Schedule C.

How to fill out a Schedule C in 7 steps 

Schedule C, also known as a business expense form, has a personal information section and five parts you’ll need to fill out:

Schedule C will ask whether you use the cash or accrual accounting method. With accrual accounting, you’ll report expenses as you incur them and income as you earn it. Most large companies use the accrual method, but many small businesses use the cash method. 

Here's a quick step-by-step guide on completing a Schedule C:

1. Fill in personal information: Begin by filling out the top part of the form, including your name, Social Security number, and the type of business entity. 
2. Tally your business revenue in Part I: Report the total sales, fees, or any other income your business generates during the tax year. 
3. Deduct your business expenses in Part II: List your itemized business expenses, such as advertising, travel, and office supplies. 
4. Calculate your cost of goods sold (COGS) in Part III: If applicable, indicate the direct expenses for producing or purchasing the goods you sell. This includes the cost of materials and labor from the production process. 
5. Report vehicle expenses and other expenses in Parts IV and V: If you use your vehicle for business purposes, calculate and deduct the allowable vehicle expenses. Then, if you have legitimate business expenses that don’t fit into any of the categories in Part II, you can itemize them in Part V. 
6. Summarize your business profit or loss: Subtract your total business expenses, cost of goods sold, and other deductible amounts from your business revenue. The resulting figure represents your net profit or loss.
7. Transfer amounts to Form 1040: Once you have your net profit or loss, report the amount on Form 1040 or your personal income tax return. You’ll also attach your 1040 Schedule C to your tax return when filing. 

Filling out a Schedule C can seem intimidating, but it can be a straightforward process with the right approach. 

For example, having all your income and expenses in one place—where you can get paid and manage your money all in one with a business bank account like QuickBooks Money—can help streamline tax time.

Tips for maximizing Schedule C deductions

You can help reduce your tax burden by taking full advantage of allowable deductions.

The first step for self-employed tax deductions is to keep detailed records. You’ll want to maintain accurate records of all your business-related income and expenses. This includes receipts, invoices, bank statements, and financial records. From there, to maximize your Schedule C deductions, don’t forget to: 

• Claim all eligible business expenses: Identify and claim all legitimate business expenses. Common deductions include rent, utilities, office supplies, advertising, professional fees, and travel expenses. 
• Use the home office deduction: If you use part of your home exclusively for business, you can use the home office deduction. This can include the standard deduction or a portion of your rent or mortgage. 
• Track your vehicle expenses: Keep track of your business-related vehicle expenses or mileage. You can choose to deduct actual expenses or use the standard mileage rate provided by the IRS.
• Make retirement contributions: Consider contributing to a type of 401(k) for the self-employed, such as a Solo 401(k) or a Simplified Employee Pension (SEP) IRA. Contributions can reduce your taxable income.
• Include your health insurance premiums: If you're self-employed and pay for your health insurance, you may be eligible for a deduction. This deduction can also extend to your spouse and dependents. 
• Capitalize on business asset depreciation: Depreciation allows you to deduct the cost of business assets like equipment and computers over their useful life. It can be a significant deduction for businesses with lots of assets. 
• Keep track of your startup costs: If you're in the early stages of your business, you may be able to deduct certain startup costs. This can include research or marketing and organizational expenses.

Also, depending on your business structure, you might qualify for the QBI deduction, up to 20% of your qualified business income. Using these tax deductions for 1099 contractors and self-employed individuals can reduce your Schedule C taxes when it comes to tax time. 

Find peace of mind come tax time 

Filling out your Schedule C doesn't have to be daunting. You can effectively navigate the tax form by organizing your business expenses and understanding deductible expenses. 

Accounting software like QuickBooks Self-Employed can organize receipts and track miles, as well as help you seamlessly manage taxes.

QuickBooks Money: QuickBooks Money is a standalone Intuit product that includes QuickBooks Payments, and currently does not connect with other QuickBooks products such as QuickBooks Online (and QuickBooks Checking), QuickBooks Self-Employed, or GoPayment. Intuit accounts are subject to eligibility criteria, credit, and application approval. Banking services provided by and QuickBooks Visa Debit Card are issued by Green Dot Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Visa is a registered trademark of Visa International Service Association. QuickBooks Money Deposit Account Agreement applies. Banking services and debit card opening are subject to identity verification and approval by Green Dot Bank. Money movement services, including Same Day Deposit, are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services.