Schedule C

Schedule C (Profit or Loss From Business) is an IRS tax form used by sole proprietors, single-member LLCs, and independent contractors to report income and expenses from operating a business or practicing a profession. This schedule calculates net profit or loss from self-employment activities, which directly affects both income tax and self-employment tax liability.

You must file Schedule C if you operate a business as a sole proprietor, work as an independent contractor or freelancer, are a single-member LLC owner (unless you elect corporate taxation), operate a qualified joint venture with your spouse, or receive income reported on Form 1099-NEC or 1099-K. Even small side businesses, gig economy work, and hobby activities that generate profit require Schedule C reporting.

The form consists of five main parts. Part I reports gross receipts and sales, returns and allowances, and cost of goods sold to determine gross income. Part II lists ordinary and necessary business expenses across numerous categories including advertising, car and truck expenses, commissions and fees, contract labor, insurance, legal and professional services, office expenses, rent, repairs, supplies, taxes and licenses, travel, meals, utilities, and wages paid to employees. Part III details cost of goods sold calculations for businesses that maintain inventory. Part IV captures vehicle information if claiming car expenses, and Part V addresses other expenses not listed elsewhere.

Net profit from Schedule C flows to Form 1040 as business income and to Schedule SE for calculating self-employment tax (15.3% on net earnings). This means self-employed individuals typically owe both income tax and self-employment tax on business profits. However, Schedule C also allows valuable deductions including the home office deduction, qualified business income deduction (up to 20% under Section 199A), health insurance premiums for self-employed individuals, and retirement plan contributions.

Accurate record-keeping is critical for Schedule C compliance. The IRS requires documentation supporting all income and expense claims. Mixing personal and business expenses, inflating deductions, or failing to report all income are common audit triggers. Many self-employed individuals benefit from maintaining separate business bank accounts and using accounting software to track transactions throughout the year.