What Is Schedule C Tax Form (Form 1040)?
A Schedule C form is the tax form used by a sole proprietor to calculate their business’s net profit or loss. This amount will then be used on the proprietor’s personal income tax return to figure out their total tax liability for the year. The Schedule C form is submitted as part of an income tax filing.
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
Here’s What We’ll Cover:
Do I Have to File a Schedule C?
Yes, all sole proprietorships must file a Schedule C (“Profit or Loss from Business/Sole Proprietorship”) with their taxes. A Schedule C form is a detailed form as figures for income, expenses and cost of goods sold all need to be recorded. A net profit or loss figure will then be calculated, and then used on the proprietor’s personal income tax return (on form 1040).
Typically, a sole proprietor files their personal and business income taxes together, on one return. This type of business is referred to as a “pass-through” entity. This means the profit is only taxed once.
What Is the Minimum Income to File Schedule C?
There is no minimum income to file the Schedule C. All income and expenses must be reported on the Schedule C, regardless of how little you earned. If you meet certain criteria — detailed below — you may be able to file the Schedule C EZ instead.
There is a minimum threshold of $400 for paying self-employment tax. If you earn less than $400, you won’t be required to pay that tax. But don’t get that confused with not needing to report your self-employment income. You need to report all self-employment income.
Who Needs to File a Schedule C Form?
A Schedule C is used by two different types of businesses:
- Sole Proprietors
- Single-member limited liability corporations (LLCs)
A sole proprietorship is an unincorporated business. It is run by one person who is entitled to all of the profits that are made, but they are also responsible for all of the liabilities and any losses.
This is the most common choice for freelancers, independent contractors or anyone who operates a business by themselves.
Single-member LLCs are businesses that are owned by just one person. Most commonly, there is no distinction between the owner and the LLC. This tends to be for income tax purposes. So the business’s profits are incorporated into the owner’s personal tax return.
You may also have to file a Schedule C if you are someone’s employee but you’re freelancing on the side.
How to Fill Out a Schedule C Form
You will first need the following information:
- Your business income statement and balance sheet for the relevant tax year.
- Your business expenses receipts.
- Inventory records.
- Mileage and other vehicle records that was used for business purposes.
Part I - this is where you tally your sales and report your cost of goods sold. This then allows you to see your gross profit.
Part II - here you can report your business expenses. The instructions for Schedule C explain the rules for each type of expense. To get to your net profit, you have to add up all the expenses and subtract them from your gross profit. This is taxable income for your personal tax return. If you have a net loss, it may be deductible on your personal tax return.
Part III - this part helps you to calculate your cost of goods sold, known as COGS.
Part IV - this is where you can report certain information on any vehicle that you use for business purposes.
Part V - This is a miscellaneous section where you can list other business expenses that didn’t fit into the categories in Part II.
What Is a Schedule C-EZ?
A schedule C-EZ is an abbreviated version of Schedule C, and it is meant for very small businesses. This form can be used instead of Schedule C, when the following criteria are met:
- The business’s expenses were not greater than $5,000 for the tax year.
- The business did not have a net loss.
- The business uses the cash method of accounting.
- There are no employees.
- There is no inventory.
- There was there no deduction for business use of the proprietor’s home.
- There’s only one business.
Is a 1099 the Same as a Schedule C?
A form 1099 is not the same as a Schedule C form.
A form 1099 is a tax form used by companies to report payments they’ve made, other than regular wages, salaries or tips (which are reported through a W-2 form).
If a business provides you with employment, but you do not work for that company full time, then you are considered a freelancer or contractor. You do not fill out form 1099, that company does, and it will include the fees it paid you on that form. It will then file the 1099 with the government, and provide you a copy too so that you can do your personal income tax return using the figure provided.
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