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. What form do small business partnerships use to report business expenses?

    I've heard that sole proprietorships report business expenses on a schedule C form.  Read Answer >>
  2. Does the max contribution to a Roth IRA apply to the gross Schedule C income?

    I am receiving a pension and Social Security, but I have just accepted a position for which I must report the income on Schedule ... Read Answer >>
  3. Do I have to pay US income tax on a consulting fee I received from a foreign source?

    I was asked by a foreign colleague to share some of my research with his students. It was required that I put at least as ... Read Answer >>
  4. Can I file 1040 business taxes for a small business, separately from my individual ...

    I have already filed my individual income taxes and received my refund. My husband has a towing busine... Read Answer >>
  5. 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 >>
  6. 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 >>
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. Personal Finance

    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. Entrepreneurship & 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.
  4. Personal Finance

    An Overview Of Itemized Deductions

    Not taking the standard deduction this year could save you hundreds of dollars.
  5. Personal Finance

    The Ultimate Tax-Time Checklist

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

    Explaining Tax Returns

    A tax return is the form or forms used to file income taxes with the IRS.
  7. 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.
  8. Financial Advisor

    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. Personal Finance

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
  10. Retirement

    10 Tax Benefits For The Self-Employed

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

    A rate sheet used by individual taxpayers to determine their ...
  2. C Corporation

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

    Schedule A is a U.S. income tax form that is used by taxpayers ...
  4. 1040 Form

    The standard Internal Revenue Service (IRS) form that individuals ...
  5. Schedule L

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

    1. The tax form or forms used to file income taxes with the Internal ...
Trading Center