What Is a Schedule C Form? It’s Your Business’s Net Profit or Loss
A Schedule C form is the tax form used by a sole proprietor to calculate his business’s net profit or loss. This amount will then be used on the proprietor’s personal income tax return to figure out his total tax liability for the year. The Schedule C form is submitted as part of an income tax filing.
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 his 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?
The minimum income requirement for the reporting of self-employed earnings is $400.
You are considered self-employed if any of the following apply to you:
- You carry on a trade or business as either an independent contractor or sole proprietor.
- You are a member of a partnership that carries on a trade or business (a partnership is when two or more people contribute money, property, labor or skill to a business, and share in the profits and losses).
- You run a part-time business.
The $400 figure should not be confused with the $12,000 minimum reporting requirement the IRS notes on its website. This is because that 12k income will already have been subjected to taxes. A sole proprietor has not yet paid any taxes on his business income, and as such, that minimum requirement does not apply.
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.