What Is Schedule C Tax Form (Form 1040)? (2023)

7 Min. Read

August 17, 2022

What Is Schedule C Tax Form (Form 1040)? (1)

A Schedule C Form is the way you report any self employed earnings to the IRS. It’s part of your individual tax return, you just attach it to your 1040 Form at tax time.

Schedule C is where you record your business income and expenses, and your overall profit or loss for that tax year. It’s for businesses that are an unincorporated sole proprietor or single-member limited liability company (LCC).

A Schedule C Form applies to you if:

  • You’re a small business owner
  • You have a side gig alongside your paid, regular job
  • You do freelancer work
  • You’re an independent contractor
  • You have another stream of self employment income

Is This You? Check Out the Rules and How You Fill Out Schedule C

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice, please contact an accountant in your area.

Here’s What We’ll Cover:

  • Who Needs to File a Schedule C?
  • What is the Minimum Income to File Schedule C?
  • How to Complete a Schedule C Form?
  • 5 Sections of Schedule C
  • What’s a Schedule C-EZ
  • Is a 1099-NEC the Same as a Schedule C?
  • Even if Schedule C Is New to You – It’s Not That Scary With Freshbooks!

Who Needs to File a Schedule C?

There are 2 business structures that mean you need to file a Schedule C – sole proprietorships and single member limited liability companies (LLCs). You must complete a separate Schedule C Form for each business you own.

If your business is a C corporation or S corporation, Schedule C does not apply to you.

(Video) Schedule C Form 1040 Sole proprietor, independent contractor, LLC. How to fill out form Schedule C.

Now, let’s just be absolutely clear on the IRS definitions for each of these business structures.

Sole Proprietorship

A sole proprietorship is an unincorporated business that is owned and run by 1 person. It also means:

  • You’re entitled to all the profits
  • You’re responsible for any losses and liabilities

It’s usually what independent contractors, freelancers and single-person businesses operate as and most of these small business owners submit Schedule C forms. It means that your business is classed as a ‘pass-through’ entity for tax purposes and ensures that the profits are only taxed once.

Single-Member Limited Liability Company (LCC)

This is a business that’s totally owned by 1 person. It can be treated as a corporation and you can file a corporation tax return. But it isn’t usually considered a separate legal business entity from the owner for income tax purposes. All self-employed income from the business and any profits made are included in your personal tax return – using Schedule C.

Employed and Self-Employed

You’ll probably have to file a Schedule C if you’re an employee with your own business on the side. The IRS says you’re in business if you make money from regularly and continually doing your ‘thing’.

But if that thing is farming, you’ll need a Schedule F and if your business involves royalties or rental income, you’ll need a Schedule E.

It also means that if you earn a little bit extra through a hobby, you don’t have to file a Schedule C.

Here’s the current Schedule C form and here’s the IRS instructions that go with it. Don’t worry, it’s information that’s already organized in your FreshBooks account. You’re just entering it into the Schedule C format.

What Is the Minimum Income to File Schedule C?

There is no minimum income threshold for filing a Schedule C. You must report all business income and expenses on your Schedule C, no matter how much or how little you make.

(Video) How to Fill out Schedule C Form 1040 – Sole Proprietorship Taxes

The minimum threshold for paying self-employment tax is $400. So if you make less than $400 in that tax year, you don’t have to pay tax. But you still have to file your Schedule C with your 1040, even if your self-employment tax bill is $0.

How to Complete a Schedule C Form

Now you know you need to file a Schedule C with your taxes, you’ll be worrying about how you do it. No need. Get your FreshBooks app open and find all this essential information in a couple of clicks.

Schedule C asks for the following details, as they apply to your small business:

  • Name
  • Business Address
  • Accounting method you use
  • Product or service
  • Employer Identification Number (EIN) (Not the same as your Social Security number)
  • Income Statement
  • Balance sheet
  • Inventory records
  • Cost of goods sold
  • Business expenses and receipts
  • Business mileage records, car and truck expenses, vehicle records

Deducting your total business expenses from your income gives your net profit or loss. Schedule C is where you calculate this information.. Any net profit is then reported to the IRS as income on your 1040 income tax form.

Keeping detailed records of your business activity is the key for every self-employed person. Thank-you FreshBooks account!

5 Sections of Schedule C

What Is Schedule C Tax Form (Form 1040)? (3)
  • Part 1: Tally your sales and report cost of goods sold, showing your gross income.
  • Part 2: Business expenses: There’s 12 categories of deductible business expenses to help make sure you include everything. For example: legal and professional services, advertising and working from home. Deducting the total of these expenses from your gross profit gives your net profit. This is the taxable income figure for your personal tax return. If you’ve made a net loss this year, it might be deductible on your 1040.
  • Part 3: Helps calculate your cost of goods sold (COGS). This section doesn’t apply if you’re a service-based business.
  • Part 4: Business related car and truck expenses.
  • Part 5: Miscellaneous business expenses that don’t fit into Part 2’s categories. Remember, a business expense “must be both ordinary and necessary” in order to be considered a business expense for tax purposes.

What’s Schedule C-EZ?

If you’re a very small business, a Schedule C-EZ will make your tax life a bit easier. It’s a short version of the Schedule C and you can use it if your business meets the following criteria:

  • Uses cash method of accounting
  • Expenses a maximum of $5,000 for that tax year
  • No net loss
  • No employees
  • No inventory
  • Only 1 business
  • No deduction for use of the sole proprietor’s home

Is a 1099-NEC the Same as a Schedule C?

No, a 1099-NEC form isn’t the same as your Schedule C. And it’s not a substitute.

There are a group of 18 separate 1099 forms. The one that gets mixed up with Schedule C reporting is the 1099-NEC. It’s how businesses report any payments they make to freelancers and contractors. You must complete a 1099-NEC form for anyone who isn’t a direct employee, that you pay more than $600 in the tax year.

If you’re the contractor or freelancer being paid, you should get a copy of this 1099-NEC by 31st January after the end of the tax year. It’s a handy record for your tax return.

(Video) Self-Employed: LLC Taxes and Schedule C Basics

The only time this doesn’t apply is if payment is made using a third party, debit card, or credit card. In these circumstances, the financial institution will report the transaction to the IRS.

Of course there’s more nuance to the 1099-NEC rules than that – come one, you’d be disappointed if there wasn’t! If you think you should be filing 1099-NECs or getting copies from your clients – you’ve got more details in this article.

Even if Schedule C Is New to You – It’s Not That Scary With Freshbooks!

As a self-employed small business owner, completing any IRS forms is always a little bit daunting. Especially the first time. But you can see that a Schedule C form isn’t anything to stress about. All your essential figures are in your FreshBooks app waiting for you. And here’s more information in the FreshBooks Resource Hub. We’ll do it together.

Many sole proprietors wisely invest in help from a tax professional to make sure they report all income earned and don’t miss out on any expense that leads to tax deductions.

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FAQs

Why am I being asked to fill out a Schedule C? ›

Schedule C is used to report income and expenses from a business you own as a sole proprietor or single-member LLC. If you are self-employed or receive 1099-NEC Forms, you'll likely need to use Schedule C to report income and expenses for your trade or business.

What should I put on my Schedule C? ›

Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.

What happens if I don't file a Schedule C? ›

If You Don't File a Schedule C…

Losses can offset other income on your tax return reducing your taxes. Claim a loss (net operating loss) that you can carry over to offset income on future tax returns. (See rules about net operating losses due to CARES Act.)

What triggers IRS audit on Schedule C? ›

IRS Audit Triggers for Schedule C Audits

Failure to accurately report income, particularly sales income and cost of goods sold if there is inventory, may trigger an audit. This is especially true of cash income that has not been properly documented, such as with receipts and ledgers.

How do I fill out a 1040 Schedule C? ›

Steps To Completing Schedule C
  1. Step 1: Gather Information.
  2. Step 2: Calculate Gross Profit and Income.
  3. Step 3: Include Your Business Expenses.
  4. Step 4: Include Other Expenses and Information.
  5. Step 5: Calculate Your Net Income.
  6. And If You Have a Business Loss.

How much income requires a Schedule C? ›

What Is the Minimum Income to File Schedule C? There is no minimum income threshold for filing a Schedule C. You must report all business income and expenses on your Schedule C, no matter how much or how little you make. The minimum threshold for paying self-employment tax is $400.

How much loss can you claim on Schedule C? ›

How much business loss can I claim on my taxes? For tax years beginning in 2021 and continuing into future years, you can take a loss up to $262,000 if you are an individual or $524,000 for a joint tax return.

Can I file Schedule C with no income? ›

If there is no income to report, it is unnecessary to file Schedule C, unless there are credits or deductions to claim. However, even if the taxpayer does not file Schedule C, he or she must still file Form 1040 if he or she obtained income from other sources.

Is a Schedule C necessary? ›

Is it necessary that I file a Schedule C? If your sole proprietorship business has no profit or loss during the full year, it's not necessary to file a Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) for that year.

Do I need receipts for Schedule C? ›

3. Look at the gross income reported on line 7 of Schedule C. You must provide proof of your income during the audit. Documents that prove your income include 1099-MISC forms and 1099-K forms and all bank statements for year.

Who gets audited by IRS the most? ›

IRS Audits Poorest Families at Five Times the Rate for Everyone...
  1. Figure 1. Internal Revenue Service Targets Lowest Income Wage Earners with Anti-Poverty Earned Income Credit at 5 Times Rate for Everyone Else, FY 2021. ...
  2. Figure 2. Audits of Individual Tax Returns. ...
  3. Figure 3. ...
  4. Figure 4.
8 Mar 2022

Does the IRS look at your bank account during an audit? ›

The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.

What are red flags to the IRS? ›

Red flags may include excessive write-offs compared with income, unreported earnings, refundable tax credits and more. “My best advice is that you're only as good as your receipts,” said John Apisa, a CPA and partner at PKF O'Connor Davies LLP.

Is Schedule C income considered self-employed? ›

Your net income from self-employment is what you report on Schedule C of your federal tax return.

Does Schedule C count as earned income? ›

If you work for yourself, and by yourself, in a small business, you must file a business tax return, usually on Schedule C. The net income you report from this business (gross income minus deductible business expenses) is considered your earned income from the business that year.

What is the minimum income that must be reported? ›

According to a draft of IRS Publication 501, you must file a tax return for 2022 under any of the following circumstances if you're single, someone else can claim you as a dependent, and you're not age 65 or older, or blind: Your unearned income was more than $1,150. Your earned income was more than $12,950.

Do you get a tax refund if your business loses money? ›

Do you get a tax refund if your business takes a loss? Yes! At least, a business loss will never prevent you from getting a refund if you're entitled to one already. And because a business loss can lower your other income, it might even increase your chances of getting one.

Do you have to have receipts for business expenses? ›

What is a business tax receipt? If you plan to include business expenses as deductions on your tax return, the IRS requires you to keep supporting documentation that shows what you bought, how much you paid, and when you bought it.

What happens if you have more expenses than income? ›

If your deductions exceed income earned and you had tax withheld from your paycheck, you might be entitled to a refund. You may also be able to claim a net operating loss (NOLs). A Net Operating Loss is when your deductions for the year are greater than your income in that same year.

Why is TurboTax making me fill out Schedule C? ›

Self-employed taxpayers report their business income and expenses on Schedule C. TurboTax can help make the job easier. Use Schedule C to calculate whether your business had a taxable profit or a deductible loss.

How do I get rid of Schedule C? ›

On the screen titled Schedule C - Principal Business or Profession, enter the Principal business or profession, then click < Back. On the screen titled Complete your Schedule(s) C, click the trash can icon to delete the extra Schedule C.

How much money do you have to make to file a Schedule C? ›

See Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C) for more information. You have to file an income tax return if your net earnings from self-employment were $400 or more.

Do you get refund from Schedule C? ›

If you own a pass-through business and your estimated tax payments and tax withholding exceed the tax due on your return, you can receive a tax refund. Only C corporations pay income taxes directly, so C corporations are the only businesses that can get a refund.

Is there a standard deduction for Schedule C? ›

The self-employed can take the standard deduction on Form 1040 and still deduct their business expenses on Schedule C. The standard deduction lets taxpayers lower their tax burden by deducting a standard amount set by the IRS from their taxable income.

Can you take Schedule C expenses without income? ›

You should still file, even if you haven't received income yet. You can show a loss on Schedule C when filing taxes with no income to offset other income.

Can I file Schedule C from a hobby? ›

For-Profit Income and Expenses

If you engage in the activity for profit, you will need to report your income and expenses on Schedule C. You'll pay self-employment tax on your earnings. However, your expenses won't be limited.

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