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SCHEDULE C:
What Freelancers Need to Know
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What Is the Schedule C, and Why Is It Important for You?
Trying to get a grip on all the tax forms you need as a freelancer? The all-important Schedule C tax form is a good place to start.
If you're a freelancer, you have a side gig or you are self-employed, you may need to file a Schedule C with your 1040 tax form form when the tax year ends. The Schedule C tax form is used to report your self-employment income and your business expenses.
Key Highlights:
- Schedule C is filed as part of your personal income tax return.
- You will have to file a Schedule C if you earned any self-employed income.
- Schedule C helps you find your taxable self-employed income after you’ve entered your profit and loss.
Here's what the Schedule C looks like:
Table of contents
What is the 1040 Schedule C?
The Schedule C 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 also fill out the Form 1040 Schedule C. Even if you also work as a full-time employee, any income outside of your W-2 earnings, from side gigs to freelance income should be reported on Schedule C.
Business expenses like advertising expenses, rent, supplies, insurance and vehicle-related expenses are all reported on the Schedule C IRS form. This helps you find the net profit you made on your business income, so you know how much tax you owe.
Let’s look at a Schedule C example:
If you're wondering whether the Schedule C 1040 is the same as the 1099 form, the answer is no, but you may need Form 1099 to help you fill out your Schedule C. A 1099 form is an information sharing form that a company or individual uses to report to the IRS any payments it made to a non-employee for a product or service. So, if you are a freelancer who works for another company on a contract basis, then the company is responsible for reporting the payments to the IRS using a 1099 form.
Quick tip
If you're expecting to receive a 1099 form for self-employment work you did, and it isn't sent to you at the end of the year, you can reach out to your client to send you a copy.
What’s IRS Schedule SE?
If you're self-employed, Schedule C isn't the only form you need to fill out that W-2 employees don't. Schedule SE helps you calculate your Social Security and Medicare taxes, also known as self-employment tax or SECA (Self-employed Contributions Act) tax. They are 15.3% of your taxable income, 50% of which you can deduct from your taxable income.
Both Schedule SE and the 1040 Schedule C get attached to Form 1040
Who files Schedule C?
Form 1040 Schedule C is useful for both sole proprietors and single-member limited liability corporations (LLCs). When you are filing as a single-member LLC, Schedule C helps reduce the paperwork that is otherwise required when filing as a full-fledged company.
A single-member LLC is a business entity that's owned by one person. That person will use Schedule C to calculate 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 them in order to be classified as an LLC.
Anyone who is self-employed can file a Schedule C. This means anyone who runs a business as a sole proprietor or earns income as an independent contractor, a freelancer, a gig worker or a 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), instead of reporting your business income as a partnership subject to federal taxes.
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 individual who owns the business.
As soon as you start working on freelance or side-gig projects, or you start your own business, the IRS automatically considers you a sole proprietor that needs to pay estimated taxes.
Your taxpayer status is by default a sole proprietorship if you are working as a full-time self-employed individual.
For example, if you own a catering company, tutoring service, house cleaning service or landscaping company, you're a sole proprietor. If you start a business with other people, it's considered a general partnership.
Is Schedule C only for the self-employed?
If you're a W-2 employee, but you also work a side gig such as delivering for DoorDash or Lyft, you'll need to fill out a Schedule C to report the income from your side gig separately from your W-2 income.
On the flipside, if you're making money on the side but have no intent to run your own business or earn business profits, what you're doing could be considered a hobby and wouldn’t be part of your Schedule C.
However, you would still need to report the income from your hobby on Schedule 1, under Additional Income, and you cannot claim any self employment tax deductions on this income.
When to file Schedule C
Every taxpayer must file a Schedule C once a year in April or October (if you filed for an extension), when you submit the 1040 Form.
How to fill out Schedule C
You can easily download a copy of the Schedule C form on the IRS website and follow the IRS Schedule C instructions to fill out the form. .
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:
You should prepare a detailed profit and loss statement to help with preparing your schedule C. You can use FlyFin to automatically create one.
You can calculate your taxable income based on the information you enter on the Schedule C tax form.. Enter the taxable income from the Schedule C Form 1040 on your 1040 tax form to calculate your overall tax liability.
Let’s look at the steps for calculating your Schedule C income.
First, add together your receipts from any sale of goods or services. You should receive a 1099-NEC from any clients who paid you $600 or more for your services. Even if you didn't, you are still responsible for reporting this income to the IRS.
If you gave any refunds for damaged or returned goods, you would need to report this on line 2 and subtract this amount from your gross receipt from sales.
In section III, subtract the cost of any goods you sold. Be sure to account for any purchases you made for inventory or raw materials 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. Check your calculations with a 1099 tax calculator.
If a CPA or other tax service files your taxes, including Schedule C taxes, they can calculate your gross profit and income for you.
The Schedule C form
Important Schedule C Form 1040 considerations for freelancers
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