Contributed by: AndyS, FreeTaxUSA Agent, Tax Pro
If you own a small business, perform contract or freelance work, or pick up side gigs for extra money, the IRS usually considers you self-employed. If that sounds like you, you’ll typically report that income on Schedule C.
What is Schedule C?
Let’s start with the basics. Schedule C, Profit or Loss from Business, is the form you use with Form 1040 to report the money your business earned and expenses you paid. After those expenses are subtracted from your income, the amount left is your net self-employment income. This amount may also be subject to self-employment tax, which is calculated on Schedule SE.
What is Schedule SE?
Here’s where Schedule SE comes in. When you work for an employer, they withhold Social Security and Medicare taxes from your paycheck. Your share of these taxes is 7.65% of your wages (up to an annual limit), and your employer pays another 7.65%, for a total of 15.3%. When you’re self-employed, there isn’t an employer to withhold those taxes or pay half for you. Instead, Schedule SE helps calculate 15.3% self-employment tax on your net self-employment income. Since you’re treated as both the employer and the employee, you’re responsible for the full amount.
How do I know if I’m required to file a Schedule C?
You’ll generally need to file Schedule C if you earn money from any of these:
- A sole proprietorship
- A single-member LLC
- Contract work, freelance work or side gigs such as short-term jobs, DoorDash, Uber Eats, or similar work
In general, if you perform work with the goal of making money, the IRS usually considers it self-employment income. That means you’ll need to report it on Schedule C.
What information do I need to fill out Schedule C?
Schedule C can look a little overwhelming at first, but it’s really about two main things: what you earned and what you spent on your business. To get started, it helps to have this information ready: Personal and business information, including your name, SSN, business name, business address, Employer Identification Number (EIN), and if applicable,
- Your accounting method, such as cash, accrual, or other; cash is the most common
- Business expenses, like advertising, supplies, or licenses, plus receipts and other spreadsheets tracking those expenses
- Business income, including gross receipts or sales and any 1099 forms the business received (such as Form 1099-NEC, Form 1099-MISC, or Form 1099-K)
- Your business activity, including the type of product or service you provide
- Cost of goods sold (COGS), if applicable
- Inventory records, if applicable
- Business mileage records, including miles driven for business purposes, as well as other vehicle-related business expenses
💡 Note: A good rule of thumb is that business expenses need to be both “ordinary” and “necessary” to be deductible on Schedule C. “Ordinary” means the expense is common and accepted in your type of business. “Necessary” means it’s helpful and appropriate for running your business.
Where do Form 1099-NEC and Form 1099-MISC fit in?
If you’re self-employed, your clients may send you 1099 forms, such as Form 1099-NEC or Form 1099-MISC, to show how much they paid you during the year. In general, a business is required to send a 1099 form if they paid you $2,000 or more for services during the year. Even if you don’t receive a 1099, you still need to report all your business income.
You may also need to send 1099 forms to vendors or contractors you paid through your business. Those payments are usually reported as business expenses on Schedule C, along with your other eligible expenses.
What should I remember about Schedule C?
The good news is that Schedule C doesn’t have to feel intimidating. Once you know what income to report and have your business records ready, the process becomes much more manageable. Keep track of what you earned, save receipts for your expenses, and report all your business income—even if you didn’t receive a 1099. The FreeTaxUSA software can help walk you through each step, so you feel more confident when it’s time to file.