Understanding the Schedule C Tax Form: Everything You Need to Know

If you’re self-employed or own a small business, you already know getting paid isn’t as simple as collecting a bi-weekly paycheck. 

Did you also know you need to file a Schedule C tax form with your income tax return? 

Schedule C reports your self-employment income to the IRS. If you run a business or you’re self-employed, you’ll need to file a Schedule C tax form with your IRS Form 1040 each April. Correctly preparing and filing your Schedule C is crucial to staying compliant and avoiding tax notices or fines. 

Keep reading to learn how to fill out a Schedule C form.

What is a Schedule C Tax Form? 

If you recently started your business venture, you may wonder: What is a Schedule C tax form? 

Explanation and Function of Schedule C

Sole proprietors use Schedule C to report their business income and expenses. Schedule C calculates business taxable income for the business owner’s Form 1040. 

Who Needs to File a Schedule C Tax Form? 

Self-employed individuals and owners of sole proprietorships should file a Schedule C tax form. 

How do you know if you should file a Schedule C? Consider whether your business fits one of the following descriptions:

• Sole proprietorship: The sole proprietorship is the default entity type for small businesses. Independent contractors and gig workers are typically sole proprietors. Your venture is generally a sole proprietorship unless you file an LLC registration or entity election.
  
• Single-member LLC: The small business owner must file LLC formation documents to establish a single-member LLC. If you’re the sole owner of your business and you organized an LLC in your state, your business is a single-member LLC. 

How to Fill out a Schedule C Form in 4 Steps

Ready to complete your Schedule C? You can download a fillable Schedule C tax form from the IRS website. We recommend referring to the IRS Schedule C instructions.

Follow these steps so you don’t miss important details. 

Step 1: Gather Documents and Information 

First, collect your records; gather your business information and bookkeeping documents. 

You’ll need the following information to fill out your Schedule C tax form: 

• Financial records and receipts: Collect your bank statements, sales reports, and vendor receipts.
  
• Income and expense statements: Have you updated your bookkeeping? Gather your annual business income and expense schedules.
  
• Tax ID number: If you applied for an EIN, find your confirmation letter from the IRS.
  
• Payroll reports: Total the employee and contractor wages (if any) you paid during the year.
  
• 1099 Forms: If you work as an independent contractor, you should have received a Form 1099 from every US-based client. 
  
• Inventory reports: If your business sells physical goods, gather your records of inventory on hand at the end of the year. 

Step 2: Understand the Schedule C Sections

Before getting started, familiarize yourself with the various sections of the Schedule C tax form. 

Taxpayer Information

You’ll need to provide business information such as the business’s name, EIN, and address. If you don’t have an EIN, don’t worry – sole proprietorships don’t necessarily need one.

Part I: Income

Schedule C, Part I captures your business income earned during the year. You should expect to review your records and gather all 1099 forms you received. 

Part II: Expenses

Part II details the costs of running your business. Consider the expenses you incurred, the equipment you purchased, and the employees you hired during the year.

Part III: Cost of Goods Sold

The Cost of Goods Sold section determines the deduction for materials and inputs you use to make and sell physical goods. For example, if your business sells cakes, you should report the amount you spent on ingredients, baking tools, and employees’ wages. 

If you run a service-only business, feel free to skip Part III. 

Part IV: Information on Your Vehicle

Part IV reports information about vehicles used in your business. You may need to provide vehicle information if you drive a company car or use your vehicle for your work. 

Part V: Other Expenses

Do you have business expenses that don’t fit the categories listed in Part II? Use Part V to detail your other business costs. 

Need help with some of the terms on Schedule C? We can help.

Step 3: Prepare Schedule C and Compute Net Profit (or Loss)

After gathering support for Schedule C, you can fill out the form. The line descriptions will walk you through the taxable income calculation. 

Be sure to answer all informational questions to avoid a return rejection. 

Determine Your Schedule C Income

Review your bookkeeping schedules, bank statements, and 1099 forms. Check your bank accounts for any transfers from outside the US. 

Use Line 1 to report the income you earned (before refunds and discounts) during the year. (Exclude W-2 wages, which you should generally report on Form 1040, not Schedule C.)

Use Line 2 to subtract any refunds you issued and discounts you granted. 

If you sell physical items, complete Part III to calculate your cost of goods sold; include the total on Schedule C, Line 4. Carefully review your records and ensure you don’t duplicate your cost of goods sold as Schedule C expenses.

Your remaining income after returns and cost of goods sold (plus other income items, if applicable) represents your gross income. 

Determine Your Schedule C Expenses

After totaling your income and cost of goods sold, move on to your Schedule C deductions. 

Carefully review each line description and categorize your business expenses accordingly. If you weren’t diligent about keeping your personal and business accounts separate, check your bank statements for business purchases you made. 

Remember, business expenses that don’t fit the categories in Part II should be itemized and listed separately in Part V: Other Expenses. 

Maximize your Schedule C deductions by reviewing business tax deductions. Examples of Schedule C expenses to report in Part V include the following: 

• Software and website costs, including security and hosting fees.
  
• Education and training related to your business.
  
• Bad debts you will never receive from customers.
  
• Mileage you drove for activities such as ridesharing or delivering products to customers.

Consider consulting with tax professionals who can help maximize your Schedule C deductions.

Compute Net Profit or Loss

Subtract your total Schedule C deductions from your total Schedule C income. 

If the result is positive, you have a net profit for the year. Otherwise, your business generated a net loss. 

Step 4: Attach Your Schedule C to Your Form 1040

Lastly, report your business taxable income or loss on Form 1040 and Schedule SE (self-employment tax calculation). 

Attach your completed Schedule C to your Form 1040. You should include the Schedule C tax form when you file your income tax return. 

Methods Available for Filing Your Schedule C

Your Schedule C tax form will be attached to Form 1040, which has multiple filing options. Each method has pros and cons: 

• Mail your Schedule C to the IRS.
  • Pro:
    • Filing is free (you’ll only pay for postage).
  • Cons:
    • Processing times can be slow.
    • Manual preparation leaves room for error. 
    • Paper mail can cause security concerns.
      
• File your Schedule C electronically using tax preparation software.
  • Pros:
    • E-filed returns are typically processed quickly, and you’ll receive a filing confirmation. 
    • Tax software will help you think through tricky form questions. 
  • Cons:
    • Tax preparation software can be costly. 
    • Submitting returns online presents security risks.
      
• Partner with a tax professional who can file your Schedule C.
  • Pros:
    • You’ll have access to technical expertise. 
    • Tax professionals help you avoid mistakes and maximize deductions. 
    • Tax services extend year-round beyond your return filing. 
  • Cons:
    • Not all service providers offer accurate, low-cost services. Avoid overpaying for small business tax services by partnering with 1-800Accountant. 

Deadlines and Requesting Extensions

Federal income tax returns, including the Schedule C tax form, are generally due on April 15th each year. 

Do you need more time to file? 

You can request a six-month extension by filing an extension request before the original due date of your return. Use IRS Form 4868 to request an extension to file your Form 1040. 

How to Make Amendments to a Schedule C Tax Form

If you made a mistake on your Schedule C, you can file an amended tax return to correct the errors. 

You can amend Schedule C by preparing a new, corrected form. You should submit the amended Schedule C and Form 1040 with any other pages you adjusted. 

1-800Accountant Tax Experts Can Help You Navigate the Nuances of Schedule C

The Schedule C tax form requires diligence and planning to ensure accurate reporting. 

Stay organized throughout the year to prepare for a smooth filing process. Avoid mistakes by working with tax professionals who can assist you with filling out your Schedule C. 

The tax professionals at 1-800Accountant specialize in small business tax preparation. We can help you understand the forms and maximize your deductions. Partner with 1-800Accountant for your Schedule C tax form so you can file with minimal hassle.