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. 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 >>
  2. 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 >>
  3. 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 >>
Related Articles
  1. Small Business

    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. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  3. Taxes

    20 Tax Changes You Need To Know About

    Don't miss out on the tax changes. Here's a list that you need to know about.
  4. Small Business

    What's a Sole Proprietorship?

    A sole proprietorship is an unincorporated business that has one owner who pays the taxes on the profits of that business.
  5. Taxes

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  6. Taxes

    The Ultimate Tax-Time Checklist

    Find out what information you need to pull together before filling out your return.
  7. Taxes

    Explaining Tax Returns

    A tax return is the form or forms used to file income taxes with the IRS.
  8. Taxes

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
  9. Taxes

    10 Tax Benefits For The Self-Employed

    Running your own business has both personal and financial perks.
RELATED TERMS
  1. Schedule A

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

    A form attached to Form 1040 that is used to calculate the standard ...
  3. IRS Publication 535 - Business Expenses

    A document published by the Internal Revenue Service (IRS) that ...
  4. Business Interest Expense

    The cost of interest that is charged on business loans used to ...
  5. Statutory Employee

    A class of employee that is permitted to deduct work-related ...
  6. Schedule D

    A U.S. income tax form used by taxpayers to report their realized ...
Hot Definitions
  1. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  2. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  3. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  4. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
  5. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the demand for a good is to changes in other economic variables. ...
  6. Dark Pool

    A dark pool is a private financial forum or exchange for trading securities.
Trading Center