1. What Is Schedule C?
Schedule C (Form 1040) reports profit or loss from a business you operated or a profession you practiced as a sole proprietor or single-member LLC. The form calculates your net business income, which flows to your personal tax return.
2. Income Reporting
Line 1 of Schedule C requires total gross income from your business activity. This includes all 1099-NEC forms, cash payments, credit card payments reported on 1099-K, and any other income received. The IRS receives copies of 1099 forms and matches them to your return, so accurate reporting is essential.
3. Part I: Income
Report gross receipts on Line 1. Subtract returns and allowances on Line 2. Report cost of goods sold on Line 4 if you sell products. The result on Line 7 is your gross profit.
4. Part II: Expenses
Deduct ordinary and necessary business expenses. Common deductions include advertising, car and truck expenses, contract labor, depreciation, insurance, legal and professional services, office expenses, rent, repairs, supplies, taxes, travel, and meals.
5. Net Profit Calculation
Subtract total expenses (Line 28) from gross income (Line 7) to arrive at net profit or loss (Line 31). This amount transfers to Form 1040 Schedule 1, then to Form 1040 Line 8. Net profit is also subject to self-employment tax on Schedule SE.
6. Recordkeeping Requirements
Maintain records supporting all income and expense deductions for at least three years from the filing date. Keep 1099 forms, bank statements, invoices, receipts, and a mileage log for vehicle deductions.