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Form 1040 Schedule C
What Is Schedule C, and Why Is It Important for You?
Trying to get a grip on all the tax forms you need as a freelancer? Well, it's possible, and you can start with this page to get a better understanding of the Schedule C tax form.
If you're a freelancer, you have a side gig or are a self-employed person, you may need to file the Schedule C, along with your 1040 tax form. But you might be wondering, What is a Schedule C?
You will use the Schedule C tax form to report the profit and loss of your business to the Internal Revenue Service (IRS). This is also where you will report your business expenses, including any insurance and vehicle expenses related to your business. The Schedule C IRS form is filed annually, so you only have to worry about it at the end of the tax year.
So, what is a 1040 Schedule C? Let's take a look at what the Form 1040 Schedule looks like:
Table of contents
What is a Schedule C?
The Schedule C 1040 profit and loss from business (sole proprietorship) form is a tax form issued by the IRS to report the income and expenses related solely to self-employment activities.
Everyone who runs a business as a sole proprietor must fill out the 1040 Schedule C. Once a year, you will need to file the Schedule C Form, and you can either attach it with your 1040 Form or submit it electronically with the 1040 Form.
On the Schedule C IRS form, you will also need to report your business expenses, including advertising expenses, rent, supplies, insurance and vehicle-related expenses.
Let’s look at a Schedule C example:
You might be wondering whether Schedule C 1040 is the same as the 1099 form. It's not, and you may need the Form 1099 to fill out your Schedule C.
When doing work as a self-employed person or a subcontractor, your client typically sends you a copy of Form 1099. Form 1099 reports the money your client paid you for your work completed during the tax year.
You should include these payments as expenses along with any other business expenses you may be eligible to claim on your Schedule C.
Also, if you fill out Schedule C, you will need to fill out another schedule for Self-Employment Tax, Schedule SE. This form will help you calculate your Social Security and Medicare taxes. Then, depending on your income, you will calculate your tax amount and record this on the 1040 Form. Then you’ll need to attach Schedule SE and 1040 Schedule C along with your Form 1040.
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Form 1099
All self-empoyed individuals and freelancers who earn more than $600 during the tax year use this form to report their income to the IRS.
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US Tax Forms
The most important tax credits self-employed and freelancers.
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Schedule C
If you're running a business on your own, this the form where you report how much (knock on wood) profit you made or how much you (heaven forbid) lost.
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Form 1040
This is the master tax form that every American, freelancer or not, needs to fill out after the tax year ends.
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Form 1040-ES
All self-employed individuals and freelancers who expect to pay $1,000 in taxes for the year, are required to pay quarterly estimated taxes using this form.
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Schedule SE
People who make a living working for themselves or freelancing use this form to pay Social Security and Medicare taxes.
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Form 8829
This form helps freelancers and self-employed individuals figure out what home office expenses they can deduct from their taxes.
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Form 1099
All self-empoyed individuals and freelancers who earn more than $600 during the tax year use this form to report their income to the IRS.
Share
US Tax Forms
The most important tax credits self-employed and freelancers.
Share
Schedule C
If you're running a business on your own, this the form where you report how much (knock on wood) profit you made or how much you (heaven forbid) lost.
Share
Form 1040
This is the master tax form that every American, freelancer or not, needs to fill out after the tax year ends.
Share
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Who files Schedule C?
The form 1040 Schedule C is useful for both sole proprietors and single-member limited liability corporations (LLCs).
A single-member LLC is a business entity that's owned by one person. That person will use Schedule C to pay taxes if their business is not paying taxes as a corporation. The business can have employees or an office, but it doesn't need to have these in order to be classified as an LLC.
You won't use Schedule C if you file for a C corporation business or an S corporation business.
This means that you must qualify as someone who is self-employed to file Schedule C.
You are considered to be self-employed if you run a business as a sole proprietor or earn income as an independent contractor. This includes working as a freelancer, gig worker or business owner.
According to the IRS, you qualify as a business if you pursue your gig work regularly, and you continuously earn an income.
Certain side gigs require their own schedules. For example, if your freelance work involves farming, you should fill out Schedule F. If it involves rental income or royalties, fill out Schedule E.
If you own an unincorporated business with your spouse, you can choose to report that income on Schedule C as a Qualified Joint Venture (QJV). You would decide to do this instead of reporting your business income as a partnership for federal taxes.
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What is a sole proprietor?
A sole proprietor is someone who does not have a company like a C-Corp or S-Corp, but is a single person who owns the business. This means they are the only business owner and haven't formed a business entity.
As soon as you start working on freelance or side-gig projects, or you start your own business, you are automatically considered a sole proprietor.
For example, if you own a catering company, tutoring service, house cleaning service or landscaping company, these are all examples of sole proprietorships.
You can't be a sole proprietor if you decide to start a business with other people. In that case, you will be part of a general partnership.
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Is schedule C only for the self-employed?
You will use Schedule C as someone who is self-employed or an employee of a business.
If you work for an employer, you may still need to fill out a Schedule C tax form. For example, perhaps in addition to your W-2 job, you also work a side gig such as delivering for Door Dash or Lyft.
In this case, you will need to file a Schedule C to report the income from your side gig. This income is reported separately from your W-2 income.
Let's say you're making money on the side but have no intent to run your own business or earn business profits. In this case, this could be a hobby, and it wouldn’t be a part of your Schedule C.
However, you would still need to report the income from your hobby on Schedule 1, under Additional Income. You cannot claim a tax deduction on this income.
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When to file Schedule C?
Once a tax year, every taxpayer must file the 1040 Form. In addition to filing the 1040 annually, the Schedule C form is filed together with the Form 1040.
When filing your tax return in April or October (if you filed for an extension), you will submit the 1040 Form and Schedule C.
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How to fill out Schedule C
You can easily download a copy of the Schedule C form on the IRS website.
Read over the IRS Schedule C instructions before filling out the Schedule C tax form. Be sure to gather the following information so that you can have it readily available:
Also, you should prepare a detailed Profit and Loss Statement to help with preparing your schedule C.
Based on the information entered on the Schedule C tax form, you will need to calculate your business' net profit or loss. Then transfer the results to the 1040 tax form to calculate your overall tax liability.
Let’s look at the steps for calculating your Schedule C income.
First, add your receipts from any sale of goods or services. Your clients should have given you a 1099-MISC if they paid you $600 or more for your service. Regardless of whether you have received a 1099 Form, you are responsible for reporting this income.
If you gave any refunds for damaged or returned goods, you would need to report this on line 2. Subtract this amount from your gross receipt from sales.
Next, in section III, subtract the cost of goods sold. Be sure to account for any purchases you made for inventory or raw material during the year. This will give you the gross profit amount.
Last, add the gross profit to any income from other sources or tax credits. This will give you your gross income amount.
If a CPA or other tax service file your taxes, including Schedule C taxes, they will calculate your gross profit and income and save you from doing this yourself.
The 5 parts of the Schedule C form
Important Schedule C Form 1040 aspects for freelancers
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Quick tip
Some of your business expenses might not be easy to categorize in Part II of Schedule C, but you can itemize these expenses in Part V under "other expenses."
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