Tax Form Schedule C

Schedule C determines whether your business income is a profit or a loss. Completing a Schedule C will require a lot of documentation, and it comprises several parts.

You may learn that if you complete a Schedule C, it may also involve other tax forms. Here is what you should know about Schedule C (Form 1040).What is a Schedule C?

Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business, is a tax form from the IRS. You’ll use Schedule C to report income or loss from a business you operated or a profession you practiced as a sole proprietor. 

You’ll attach Schedule C to: 

• Form 1040
• Form 1040-NR
• Form 1040-SR
• Form 1041

Who has to File a Schedule C?

You’ll file a Schedule C if you operate your small business as a single-member LLC (to report business income taxes) or sole proprietorship.

You’ll also file a Schedule C if you’re operating a business as a qualified joint venture. Difference Between 1099 and a Schedule C?

You’ll use Form 1099, Miscellaneous Information, to report extra income. There are multiple 1099 Forms: 

• 1099-B (Proceeds From Broker and Barter Exchange Transactions)
• 1099-C (Cancellation of Debt)
• 1099-DIV (Dividends and Distributions)
• 1099-INT (Interest Income)
• 1099-MISC (Miscellaneous Income)
• 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.)

In contrast, Schedule C reports income or losses associated with your business.Schedule C Income Reporting

Schedule C has several categories to report your income or losses. If any of the amounts apply to you, you’ll enter the corresponding amount on Schedule 1 (Form 1040).Schedule C Form Process

Schedule C comprises six sections: 

• Basic Information 
• Part I: Income 
• Part II: Expenses
• Part III: Cost of Goods Sold
• Part IV: Information on Your Vehicle
• Part V: Other Expenses

The first section of Schedule C will ask for your basic information. First, you’ll provide the name of the proprietor and social security number (SSN).

Next, in lines A to F, you’ll provide additional information relevant to your sole-proprietorship: 

• Line A: Principal business or profession, including product or service 
• Line B: Enter code from instructions 
• Line C: Business name 
• Line D: Employer ID number, or EIN 
• Line E: Business address, including suite or room number 
• Line F: Accounting method (you can provide either accrual, cash, or other as responses)

Lines G to J asks additional questions about your sole-proprietorship, with “Yes” or “No” as possible answers. You’ll provide checkmarks where appropriate. 

• Line G asks if you materially participated in the operation of the business during 2020. If you haven’t, you’ll reference instructions. 
• You’ll check Line H if you’ve acquired or started your business during 2020. 
• Line I asks if you’ve made payments in 2020 that would require completing Form 1099. If so, you’ll complete Line J. 

Part I of Schedule C asks for your income information. You’ll provide your income from: 

• Gross receipts or sales 
• Returns and allowances
• Cost of goods sold

This will determine your gross profit. You’ll then add this amount with the amount entered on line 6, which asks for the amount of other income received, including:

• Federal and state gasoline, or 
• Fuel tax credit or refund

Finally, you’ll add the gross profit number (line 5) to the other income (line 6) to determine your gross income.

Part II of Schedule C is where you’ll provide expenses information. There are dozens of lines that you can fill. Depending on which categories are applicable, you can provide business expenses for: 

• Advertising 
• Car and truck expenses 
• Commissions and fees
• Contract labor
• Depletion
• Depreciation and section 179 expense deduction, not included in Part III
• Employee benefit programs (other than on line 19)
• Insurance (other than health)
• Interest (Mortgage paid to banks, and other interest)
• Legal and professional services

On the right side of Part II, if applicable, you’ll enter expenses for:

• Office expenses
• Pension and profit-sharing plans
• Rent or lease 
  • Equipment, machinery, or vehicles
  • Other business property
• Repairs and maintenance 
• Supplies (not included in Part III)
• Taxes and licenses 
• Travel and meals
• Utilities 
• Wages (less employment credits)
• Other expenses (from line 48)
  • Expenses reserved for future use

In the second part of Part II, you’ll determine different figures for your income: 

• First, provide the total of the above categories on line 28. This line is the total expenses, before expenses for business use of the home. (This expense is for line 30).
• The next line, line 29, requires you to subtract line 28 from line 7 to determine your tentative profit or loss. 
• You’ll figure out your net profit or loss on line 31. 
  • If you have a profit, you’ll enter the number on this form and others: 
    • Schedule 1 (Form 1040), line 3; and, 
    • Schedule SE, line 2
  • If you have a loss, you must proceed to line 32. You’ll enter a checkmark on lines 32a or 32b. 
  • If you checked line 32a, enter the loss on: 
    • Schedule 1 (Form 1040), line 3; and, 
    • Schedule SE, line 2
  • If you checked line 32b, attach Form 6198.

Part III of Schedule C will ask for the Cost of Goods Sold. In this part, you’ll provide: 

• Method or methods used to value closing inventory:
  • Cost
  • Lower cost or market
  • Other
• Changes in determining costs, quantities, or valuations between opening and closing inventory
• Inventory at the beginning of the year
• Purchases less cost of items withdrawn for personal use
• Cost of labor
• Materials and supplies
• Other costs 

After totaling these amounts and deducting your end of year inventory, you’ll have the cost of goods sold. 

Part IV of Schedule C will ask for information on your vehicle. You’ll complete this part of Schedule C if: 

• You want to claim car expenses or truck expenses on line 9 (in Part II) 
• You aren’t required to file Form 4562 for this business. 

If you complete this section, you’ll need:

• Information on when your vehicle was in service for business purposes
• The number of miles driven in the current tax year for: 
  • Business
  • Commuting
  • Other

After completing this section (line 44), the remaining questions for this part center on vehicle availability for personal use and evidence to support your deduction.

For Part V of Schedule C, you’ll provide information about other expenses. In this section, you’ll list business expenses not included on lines 8-26 or line 30. 

In line 48, you’ll enter the total of your other expenses here and on line 27a. 

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