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:
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:
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:
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:
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.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.