Use a Schedule C form to report how much money your sole business made or lost. Your business is called a business if you do it with the goal of making money and if you do business on a daily basis.
If you are doing a hobby or a not-for-profit job, the IRS does not need you to fill out a Schedule C. But if you work on your own, you’re probably not one of those people. If you are a sole owner and want to make money from your business, you will need to file a Schedule C.
The IRS uses the information you put on Schedule C to figure out how much money you made and whether or not you owe taxes or will get a tax return. If you own more than one business, you must fill out a different Schedule C for each one.
The IRS used to make it even easier by giving people a form called Schedule C-EZ, which was, well, easy. It was an easier form for smaller businesses, like those that didn’t get discounts for working from home. But if you have a single business, you have to use Schedule C starting with the 2019 tax year.
What is a single-owner business?
There are different kinds of business companies, and Schedule C talks about a sole owner in particular. A sole owner is a person who owns a business by himself or herself that is not part of a company.
A partnership and a company are two other types of business organizations. And if you work for a company, you don’t need to fill out a Schedule C unless you also run a side business.
How much tax does a single owner have to pay?
As a sole owner, you must file a Form 1040, the United States Individual Income Tax Return, or a 1040-SR if you are over 65.
You also fill out Schedule C (Form 1040 or 1040-SR), Profit or Loss from Business, and send it in with your return. Self-employed people or businesses with only one owner must make a tax report every year.
If your net earnings from self-employment are $400 or more, you have to file an income tax report. To figure out your net earnings, you take your taxed income and take away the money you spent on your business. You can do some quick math to figure out if it’s more than $400.
Then you can move on to filling out Schedule C.
What do you need to know to fill out Schedule C?
Before you can start filling out Schedule C with 1099, you will need the following information:
Your SSN
Your company’s tax ID number
A report of income for the year
Receipts and bills for your business costs (our business receipt manager makes it easy to send your expenses).
If necessary, records of mileage
There are also parts of the IRS directions, like the business codes section, that you’ll need to fill out the form.
It’s a good idea to read our Schedule C instructions all the way through, and then to come back and read them again as you fill out the form.
This is because some parts of the form, like Parts 3 and 5, are calculated later and then added to the calculations in Parts 1 and 2.
1. How to fill out Schedule C: parts A-J in the beginning
Let’s start our directions for Schedule C with Section A-J, which are the first part of the form. Most of these boxes are easy to fill out. You put in your name, your Social Security number, your business activity, the name of your business, and other details.
Here are some of the form’s fields where you might need more information:
A and B go together. Your main business goes in A, and you give it a code in B. The code is based on guidelines from the IRS that give codes for different kinds of businesses. These codes describe your main job or business, including the services or goods you sell. You just look at the IRS’s instructions and fill in the number.
For example, an independent photographer would be listed under Professional, Scientific, and Technical Services and given the number 541920, which stands for “Photographic services.” A consultant is in the same group, so they would be given Code 541600, which stands for “Management, scientific, and technical consulting services.”
D: Employer Identification Number (EIN): An EIN is used to recognize a business, and most companies need one. A sole owner can get a lot of use out of an EIN.
Most of the other fields are easy to fill out, like whether or not you started your business in that tax year and whether or not you did a lot of work for it.
2. Part I of the directions for Form C: Income
This part shows you how to figure out your business’s gross income, which is the money you get from customers or sales, returns and allowances, and the cost of things sold. As a self-employed solopreneur, your business income and self-employment income are the same (unless you are a statutory employee).
As you go through the Schedule C form, you follow the instructions and do the math.
Here’s what happens:
Line 1: Enter your gross income from sales or payments, before any tax reductions for being self-employed.
Line 2: Enter the total amount of returns and credits (the total amount of tax rewards for the year).
Line 3: Take line 2 and remove it from line 1 to finish line 3
Part 3 of the form is where you figure out the cost of things sold, which goes in line 4.
Line 5: remove line 4 from line 3 to finish line 5
Line 6: Enter any other income, like a gasoline or fuel tax return or refund.
Add lines 5 and 6 to get your gross pay on line 7.
3. Schedule C directions part II: costs
Here is where you list the money you spent on your business. You can list costs like advertising, commissions and fees, legal and professional services, taxes and licenses, and more on lines 8 through 27b. If you have costs that aren’t in the boxes, you’ll write them down later in Part 5 and then write them down on line 27a.
Line 28 is where you add up lines 8 through 27a to get your overall spending before adding in any costs for using your home for business. Then, you take line 28 and deduct it from line 7. This gives you line 29, which is your expected profit or loss.
Line 30 is for costs you paid because you used your home as an office or other business place, like a studio, for work. This can be worked out in two ways:
By using Form 8829 to report your expenses (and using our real costs form to keep track of your records),
By using the simple home office way, in which you put in the square footage of your home and the square footage used for business.
You can use Form 8829 or the Simplified Method Worksheet in the IRS guidelines to figure out the amount you need to put on line 30.
Then, you take your estimated profit (line 29) and remove your expenses (line 30) to get your net profit, if your costs are less than your income. Then, that amount is written on page 1 of Form 1040 or Form 1040-SR.
If your costs are more than your income, you can generally subtract the net loss from your gross income on page 1 of Form 1040 or 1040-SR.
4. Part III of the directions for Schedule C: cost of things sold
This part is only for single-person businesses that sell things. If this describes your business, you will need to know things like the inventory at the beginning and end of the year, the cost of labor, goods, supplies, and more.
You’ll get to Line 42, which is the cost of goods sold. This is the number you need to put back in Part 1, Line 4.
5. Part IV of the Schedule C instructions: information about your car
Part 2 is where you claim truck costs and car benefits. This is where you fill out the paperwork the IRS needs.
Those things are:
Total number of miles driven for work, commuting, and other reasons
Whether or not the car was used outside of work hours
Whether or not you have paperwork for the use
even more.
Note that if you use your own car for work, you can either take a reduction based on the number of miles you drive or claim the exact costs. In either case, you need to have proof to back up your point.
6. Part V of the directions for the Schedule C: other costs
In the last part of Schedule C, you can list any business costs that are not listed on lines 8–26 in Part 2, costs, or on line 30 for business use of your home.
The total of these costs is written down on Line 27a under “Expenses.”
Last thing to say
With these clear steps, you’ll be able to fill out Schedule C for your small business and include the necessary paperwork with your personal income tax return.
Schedule C reminds you that it’s important to keep full records throughout the year. You can do this by saving receipts from clients, business spending, gas for business use of your car, and costs for using your home as a business place.
At the end of the tax year, if you have any questions about your Form 1099, the accounting method you should use for your tax return or anything else related to paying your self-employment taxes, you should always talk to a tax expert.
