A:

Anyone who operates a business as a sole proprietor must fill out Schedule C when filing his or her annual tax return. IRS form Schedule C accompanies the main tax return form, 1040, for taxpayers who must report a profit or loss from their business. This schedule asks about the taxpayer’s business name, product or service, business address, accounting method, gross receipts or sales, and cost of goods sold. This form is also where business owners report their tax-deductible business expenses, such as advertising, car and truck expenses, commissions and fees, supplies, utilities, home office expenses and many more. A business expense must be ordinary and necessary to be listed as a tax deduction on Schedule C. Small business owners also use Schedule C to take a deduction for the use of a personal vehicle for business purposes and to report when it was placed in service for business purposes and the number of miles it was driven for business use.

Using the entries on Schedule C, the taxpayer calculates the business’s net profit or loss for income tax purposes. This figure then is transferred to form 1040 and is used in calculating the taxpayer’s overall tax liability for the year. Taxpayers who operate more than one sole proprietorship must file a separate Schedule C for each business.

There are a few other less common scenarios that require the use of Schedule C. These include earning wages and incurring expenses from being statutory employee, receiving income and taking deductions from certain qualified joint ventures, and receiving certain income reported on Form 1099-MISC, Miscellaneous Income. Also, sole proprietors engaged in certain lines of business may have to file other forms in addition to Schedule C. For example, landlords may need to file Schedule E to report rental income that is not subject to self-employment tax, and sole proprietors with a home office will need to file form 8829 to claim a deduction for expenses related to the business use of their home.

RELATED FAQS
  1. Do I still have to pay Social Security tax on my 2015 earnings?

    I retired in 2014. I started my own business in February 2015. I made about $1,500 in revenue in 2015,... Read Answer >>
  2. Who needs to fill out IRS Form Schedule B?

    If you have several investments, there's a good chance you'll need to fill out a IRS Form Schedule B. Read Answer >>
  3. When do I need to file an IRS Schedule F form?

    If you are a farmer, your farming business may require you to file a Schedule F with the IRS. Read Answer >>
  4. When would I have to fill out a Schedule D IRS form?

    In general, taxpayers who have short-term capital gains, short-term capital losses, long-term capital gains or long-term ... Read Answer >>
  5. What’s the difference between IRS Forms 1040 and 1040EZ?

    Though very similar, the differences between the 1040 and 1040EZ Forms are significant when it comes to filing your tax return. ... Read Answer >>
  6. What are the most common business deductions and expenses for small businesses?

    Learn about some of the most common business tax deductions available to small businesses that can reduce net business expenses. Read Answer >>
Related Articles
  1. Personal Finance

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
  2. Entrepreneurship & Small Business

    Starting A Small Business: Business Structures

    By Amy Fontinelle When you start your business, you have several options for structuring it that will affect your income tax situation and your potential liability if something goes wrong.Sole ...
  3. Personal Finance

    The Ultimate Tax-Time Checklist

    Find out what information you need to pull together before filling out your return.
  4. Personal Finance

    Explaining Tax Returns

    A tax return is the form or forms used to file income taxes with the IRS.
  5. Financial Advisor

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  6. Retirement

    10 Tax Benefits For The Self-Employed

    Running your own business has both personal and financial perks.
  7. Financial Advisor

    Tax Tips For Financial Advisors

    Self-employed advisors are prone to a number of unique expenses, but the tax benefits can often balance out the financial burdens.
  8. Investing

    Business Taxes: Not Paying More Than You Have To

    If you're a small business owner, note these potential tax deductibles so that you don't pay taxes that could have been extra revenue in your account.
  9. Personal Finance

    New Tax Rules Target The Top Tax Bracket

    The American Taxpayer Relief Act brings about new tax rules for the wealthy that people such as Warren Buffett have been calling for over the last few years.
  10. Personal Finance

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
RELATED TERMS
  1. C Corporation

    A legal structure that businesses can choose to organize themselves ...
  2. Schedule A

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  3. Schedule L

    A form attached to Form 1040 that is used to calculate the standard ...
  4. Tax Return

    1. The tax form or forms used to file income taxes with the Internal ...
  5. Sole Proprietorship

    The sole proprietor is an unincorporated business with one owner ...
  6. Business Interest Expense

    The cost of interest that is charged on business loans used to ...
Trading Center