Schedule C Tax Form: Who Needs To File & How To Do It
A Schedule C form is how you report any self-employed earnings from a sole proprietorship to the IRS. It’s part of your individual tax return. You just attach the Schedule C form to your 1040 form at tax time.
Schedule C is where you record your business income and expenses, and your overall profit or loss for that tax year. It’s for businesses that are unincorporated sole proprietors or single-member limited liability companies (LCC).
Here’s What We’ll Cover:
- Who Needs to File a Schedule C?
- What Is the Minimum Income to File Schedule C?
- How to Complete a Schedule C Form
- 5 Parts of the Schedule C Form
- What’s Schedule C-EZ?
- Is a 1099-NEC the Same as a Schedule C?
- Even If Schedule C Is New to You, It’s Not That Scary With Freshbooks
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.
Who Needs to File a Schedule C?
A Schedule C applies to you if:
- You’re a small business owner
- You have a side gig alongside your paid, regular job
- You do freelance work
- You’re an independent contractor
- You have another stream of self-employment income
There are 2 business structures that mean you need to file a Schedule C: Sole proprietorships and single-member limited liability companies (LLCs). You must complete a separate Schedule C form for each business you own.
If your business is a C corporation or S corporation, Schedule C does not apply to you.
Now, let’s just be absolutely clear on the IRS definitions for each of these business structures.
As a sole proprietor, you have an unincorporated business that is owned and run by 1 person. It also means:
- You’re entitled to all the profits
- You’re responsible for any losses and liabilities
It’s usually what independent contractors, freelancers, and single-person businesses operate as, and most of these small business owners submit Schedule C. It means that your business is classed as a “pass-through” entity for tax purposes and ensures that the profits are only taxed once.
Single-Member Limited Liability Companies (LCC)
This is a business that’s totally owned by 1 person. If you make an election with the IRS, it can be treated as a corporation, and you can file a corporation tax return. But it isn’t usually considered a separate legal business entity from the owner for income tax purposes. All self-employed income from the business and any profits made are included in your personal tax return using Schedule C.
Gig Workers and Side Hustlers
You’ll probably have to file a Schedule C if you’re an employee with your own business on the side. The IRS says you’re in business if you make money from regularly and continually doing any activity to make a profit.
But if that activity is farming, you’ll need a Schedule F, and if your business involves royalties or rental income, you’ll need a Schedule E.
It also means that if you earn a little bit extra through a hobby, you don’t have to file a Schedule C.
What Is the Minimum Income to File Schedule C?
There is no minimum income threshold for filing IRS Schedule C. You must report all business income and expenses on your Schedule C, no matter how much or how little you make.
The minimum threshold for paying self-employment tax is $400. So if you make less than $400 in that tax year, you don’t have to pay self-employment tax or file Schedule SE. But you still have to file your Schedule C with your 1040, even if your self-employment tax bill is $0.
How to Complete a Schedule C Form
Now you know you need to file IRS Schedule C with your taxes, you’ll be worrying about how you do it. No need. Get your FreshBooks app open and find all this essential information in a couple of clicks.
Schedule C asks for the following details, as they apply to your small business:
- Business Address
- Accounting method you use for tax purposes
- Product or service
- Employer Identification Number (EIN) (Not the same as your Social Security number)
- Business profits and business expenses from your Income Statement
- Inventory records
- Cost of goods sold
- Business mileage records, car and truck expenses, vehicle records
Deducting your total business expenses from your gross receipts gives your net profit or loss. Schedule C is where you calculate this information. Any net profit is then reported to the IRS as income on your 1040 income tax form.
Keeping detailed records of your business activity is the key for every self-employed person. Thank you FreshBooks account!
5 Parts of the Schedule C Form
The Schedule C form has 5 main sections:
- Income – Tally your sales and report the cost of goods sold, showing your gross profit.
- Business Expenses – There are 12 categories of deductible business expenses to help make sure you include everything. This includes legal and professional services, advertising, and home office expenses. Deducting the total of these expenses from your gross profit gives your net profit. This is the business income or loss figure that goes on Schedule 1 of your personal tax return. If you’ve made a net loss this year, it might be deductible on your 1040.
- Cost of Goods Sold – This section helps calculate your cost of goods sold (COGS). It typically doesn’t apply if you’re a service-based business.
- Information on Your Vehicle – These are business-related car and truck expenses.
- Other Expenses – Miscellaneous business expenses that don’t fit into the categories in part 2 belong here. Remember, in order to be considered a business expense for tax purposes. a business expense “must be both ordinary and necessary.”
What’s Schedule C-EZ?
If you’re a very small business, a Schedule C-EZ will make your tax life a bit easier. It’s a short version of the Schedule C, and you can use it if your business meets the following criteria:
- Cash method of accounting
- Maximum of $5,000 in business expenses for that tax year
- No net loss
- No employees
- No inventory
- Only 1 business
- No deduction for using a home office for business purposes
Is a 1099-NEC the Same as a Schedule C?
No, a 1099-NEC form isn’t the same as your Schedule C. And it’s not a substitute, either.
There are a group of 18 separate 1099 forms. The one that gets mixed up with Schedule C reporting is the 1099-NEC. It’s how businesses report any payments they make to freelancers and contractors. You must complete a 1099-NEC form for anyone who isn’t a direct employee, and who you pay more than $600 in the tax year.
If you’re the contractor or freelancer being paid, you should get a copy of this 1099-NEC by January 31, after the end of the tax year. It’s a handy record for your tax return.
The only time this doesn’t apply is if payment is made using a third-party payment platform, debit card, or credit card. In these circumstances, the financial institution will report the transaction to the IRS.
Of course, there’s more nuance to the 1099-NEC rules than that. (Come on, you’d be disappointed if there wasn’t!) If you think you should be filing 1099-NECs or getting copies from your clients.
Even If Schedule C Is New to You, It’s Not That Scary With Freshbooks
As a self-employed small business owner, completing any IRS forms is always a little bit daunting. Especially the first time. But you can see that Schedule C isn’t anything to stress about. All your essential figures to fill out your Schedule C are in your FreshBooks account, waiting for you. We’ll do it together.
Looking for help with your business taxes? Many sole proprietors wisely invest in hiring a tax professional to ensure they report all income earned and don’t miss out on any expense that leads to tax deductions.
About the author
Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics. Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others. You can learn more about her work at jberryjohnson.com.