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


What is a Schedule C?

Schedule C is a tax form self-employed individuals use to report business income and expenses. This includes Independent contractors, freelancers, single-member LLCs, and solopreneurs.


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.


Schedule C vs. Form 1099-NEC

If you're self-employed or an independent contractor, you'll need to understand how Schedule C and Form 1099-NEC work together.

Form 1099-NEC simply reports the payments you receive from clients for your services. It's a record of your earnings as an independent contractor.

Schedule C is where you calculate your actual profit. You'll use the income reported on your 1099-NEC, but you'll also factor in all your business expenses, like what you paid other contractors, supplies, and equipment. By subtracting your expenses from your total income, you determine your net profit (or loss).

Think of it this way:

  • 1099-NEC = Your earnings
  • Schedule C = Your earnings - expenses = profit

You'll then use the net profit calculated on Schedule C to complete your Form 1040 (personal income tax return). This ensures you pay the correct amount of taxes on your business income.

An illustration of the difference between a Schedule C and 1099-NEC, including what it reports and who files it.

Schedule C vs. Schedule 1

Schedule C and Schedule 1 are both tax forms used by individuals, but they serve different purposes and apply to distinct types of income. 

Schedule C is used by self-employed individuals to report business income and expenses, typically for freelancers, sole proprietors, or small business owners. It covers all aspects of income and deductions related to running a business. Schedule C calculates net profit or loss, which is then reported on Schedule 1, which then flows to Form 1040.

Schedule 1 is broader and used by any taxpayer needing to report additional types of income like unemployment, alimony, or capital gains, as well as adjustments to income such as student loan interest or self-employment tax deductions. Self-employment income is also reported on Schedule 1. Schedule 1 is an attachment to Form 1040.

While Schedule C focuses solely on business income, Schedule 1 summarizes various forms of business and non-business income and certain business and non-business deductions. 

In short, if you are self-employed, you'll file Schedule C to calculate your net profit or loss from your business. That net profit or loss will be first reported on Schedule 1 before flowing to form 1040. Schedule 1 is used  to summarize many types of non-business and business income and specific adjustments to income. If you file Schedule C, you will also file Schedule 1.


FYI: If you fill out a Schedule C, you’ll typically also need to complete a Schedule SE to calculate your self-employment tax.


Schedule C vs. W-2

As noted before, if you’re self-employed, you’ll file a Schedule C to report your business income and expenses. It outlines the profit or loss from operating a sole proprietorship or doing freelance work, allowing for deductions on business-related expenses like supplies, travel, and equipment. According to the IRS, single-member LLCs that haven't elected to be taxed as a corporation also use Schedule C. Schedule C provides the IRS with a detailed picture of a business's financial performance over the year.

A W-2 form is issued by employers to employees. It reports wages, salaries, and the amount of taxes withheld from an employee’s pay throughout the year. Employees use the W-2 form when filing their taxes to report their income, unlike self-employed individuals, who use Schedule C. 

In simplest terms, a Schedule C applies to those working for themselves, while W-2 forms are for individuals earning a paycheck from an employer.

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.

An illustration of whether you need to file a Schedule C.

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.


Tip: Even if the business generates losses, it is still necessary to file a Schedule C.


Obtaining a Schedule C

Visit the IRS website to find and download Schedule C—the full name of the form is Schedule C (Form 1040). The form will have instructions on how to fill it out. You may also pick up physical copies of Schedule C at your local IRS office, library, or post office. 

Keep in mind that the form and instructions are updated annually, so be sure you are using the correct version for the tax year you’re filing.

Information needed to file Schedule C

If you’re required to file Schedule C with your tax return, you’ll need the following information to complete the form.

An illustration of the sections you need to compete when filling out a Schedule C, including income and expenses.

Business information

To accurately report your business activity, you'll need to provide some key details about your operation on Schedule C. 

Make sure you have the following information on hand:

  • Business name: If your business has an official name, enter it here. If not, you can use your own name.
  • Business address: This is the primary location where you conduct your business activities.
  • Business code: Select the code that best describes your business activity from the list provided in the instructions.
  • Employer identification number (EIN): If you have an EIN, you'll need to include it. If not, use your Social Security number.

note icon Keep your business information consistent across all your tax forms and official documents to avoid any confusion or processing delays with the IRS.



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Income

Since this form reports the profit or loss from your business, you must report your income. To do this, you'll need to accurately report all income generated from your business activities. This might include more than just your main revenue stream:

  • Gross receipts or sales: This is the core of your business income—the total revenue you‘ve earned from selling products or services. Include income from all sources, like client payments, online sales, and any other direct earnings from your business.
  • Returns and allowances: If you had any customer returns or provided allowances, subtract those from your gross receipts to get your net sales figure.
  • Other income: This is a catch-all category for income that doesn't fit into the above and might include commissions, royalties, or awards.

note icon Don't forget to track all forms of income, even small amounts. Those seemingly insignificant payments can add up and make a difference in your overall tax liability.


Expenses

Accurately tracking and deducting eligible business expenses is crucial for minimizing your tax liability. Schedule C provides a framework for reporting various costs associated with running your business.

  • Advertising: This can include online ads, print ads, flyers, and promotional materials.
  • Car and truck expenses: If you use your vehicle for business, you can deduct expenses like gas, oil, repairs, and insurance (or use the standard mileage rate).
  • Commissions and fees: This includes payments made to others for services rendered to your business.
  • Contract labor: Payments to independent contractors who perform work for your business.
  • Depreciation: If you have business assets like equipment or computers, you can deduct a portion of their cost each year.
  • Insurance: Premiums paid for business insurance policies, such as liability or property insurance.
  • Legal and professional services: Fees paid to attorneys, accountants, or other professionals.
  • Office expenses: This includes costs like rent, utilities, office supplies, and internet service.
  • Rent or lease: Payments made for renting or leasing business property or equipment.
  • Supplies: Costs for materials used in your business operations.
  • Travel: Expenses incurred while traveling for business purposes, including airfare, lodging, and transportation.
  • Meals: 50% of the cost of meals while traveling or entertaining clients for business purposes.
  • Utilities: Costs for electricity, gas, water, and trash service for your business location.

note icon Use accounting software to simplify expense tracking and ensure you don't miss any potential deductions.



Cost of Goods Sold (If applicable)

If your business involves selling goods, whether you manufacture them or purchase them for resale, you'll need to calculate your cost of goods sold (COGS). This figure represents the direct costs associated with producing or acquiring the goods you sold during the year.

  • Beginning inventory: The value of inventory you had on hand at the start of the year.
  • Purchases: The cost of any goods you purchased during the year for resale or to use in manufacturing.
  • Direct labor: Wages paid to employees directly involved in producing your goods.
  • Materials and supplies: Costs of raw materials and other supplies used in production.
  • Other costs: This could include things like freight charges for getting goods to your warehouse or the cost of containers and packaging.
  • Ending inventory: The value of inventory you had on hand at the end of the year.

note icon Maintain detailed inventory records throughout the year, including purchase dates, costs, and quantities.



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:


Step 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. 


Step 2: Tally your business revenue in Part I

In Part I, report your gross receipts or sales. This is the total amount of money your business earned during the year. Include income from all sources, such as online sales, client payments, and any other business-related income. You'll also need to account for any returns or allowances.


Step 3: Deduct your business expenses in Part II

Part II is where you itemize your business expenses. This section is crucial for maximizing your deductions, so be thorough. 

Common deductible expenses include: 

  • Advertising
  • Car and truck expenses
  • Commissions and fees
  • Contract labor, depreciation
  • Insurance
  • Legal and professional services
  • Office expenses
  • Rent or lease
  • Supplies
  • Travel
  • Meals
  • Utilities

Refer to the instructions for specific rules and limitations for each category.


Step 4: Calculate your cost of goods sold (COGS) in Part III

If your business involves selling goods, you'll need to calculate the cost of goods sold (COGS) in Part III. This includes the cost of materials, labor, and other direct costs associated with producing or acquiring the goods you sell. You'll need to provide information about your beginning and ending inventory, purchases, and other costs.


Step 5: Report vehicle expenses and other expenses in Parts IV and V

Calculate and deduct the allowable vehicle expenses if you use your vehicle for business purposes. If you have other legitimate business expenses that don’t fit into any of the categories in Part II, you can itemize them in Part V. 


Step 6: Summarize your business profit or loss

After completing all the relevant sections, you'll calculate your net profit or loss in Part VI. This is done by subtracting your total expenses (including COGS) from your gross receipts. This figure is crucial because it's what you'll report on your Form 1040.


Step 7: Transfer amounts to Schedule 1 then to Form 1040

Transfer amounts to Schedule 1 then to Form 1040

Once you have your net profit or loss, report the amount on Schedule 1. On Schedule 1, your Schedule C income is combined with other kinds of income and deductions, and the total from Schedule 1 is transferred to your personal tax return as line 8 of Form 1040. You'll attach both Schedule C and Schedule 1 to your tax return when filing.

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.

An illustration of how to maximize Schedule C deductions, including using the home office deduction.

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, consider the following tips:


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 Qualified Business Income (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.

Schedule C FAQ

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.

A person wearing glasses and a red sweater.
Marshall Hargrave
Marshall Hargrave is a financial writer with nearly two decades of experience in finance, investing, and tax industries. He’s helped create and edit content for the likes of Investopedia, RobinHood, Fortune, and Yahoo! Finance. He’s also supported startups and small businesses with accounting, bookkeeping, and budgeting and worked with various finance organizations like the Consumer Bankers Association and the National Venture Capital Association. Marshall is a former Securities & Exchange Commission-registered investment adviser with a bachelor's degree in finance from Appalachian State University.

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