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- Schedule C is a tax form for self-employed people to report business income.
- It's also used to report tax-deductible business expenses, such as home office or equipment costs.
- If a business's net profit is more than $400, the taxpayer may owe self-employment taxes.
Self-employed people have extra work to do to file their taxes.
Whether you're a ride-share driver, a freelance writer, or a handyman for hire, you have to report the income you earn from these endeavors, and any related expenses. You do so on a tax form called Schedule C.
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Here's what to know about Schedule C and its filing requirements.
What is the Schedule C tax form?
Schedule C is a form that self-employed people have to file alongside their tax return, or Form 1040.
"The difference between Form W-2 and Schedule C is that the W-2 is for wages earned at a job. It means you're an employee somewhere," says Kristine Stevenson Seale, an enrolled agent and tax resolution specialist based in Austin, Texas.
Schedule C does the job of a traditional employer by reporting all income earned from any source; listing tax-deductible expenses, such as the costs of maintaining a home office or equipment; and calculating the net profit or loss of the business. It's the first step in figuring income taxes and self-employment taxes.
Self-employed people, "are fully responsible for a) all the employment-related tax, and b) making sure it gets sent to the IRS during the year as necessary," Seale says.
Who needs to file Schedule C
If you operate a business as a sole proprietor and collect income during the year, you need to file Schedule C. This is the case even if your primary source of income is a W-2 job and you earn a small amount of income from a side job.
"You could be an Uber driver, graphic designer working at home for Fiverr, a wedding planner, a real estate agent, dog walker, or even a freelance writer, and the income you make from your self-employment work is reported on Schedule C," Seale says.
Single-member limited liability companies, or LLCs, that do not elect to be treated as corporations for tax purposes are also required to complete and file Schedule C.
Importantly, there's no minimum income requirement for filing Schedule C, says Mark Luscombe, a CPA, attorney, and the principal federal tax analyst for Wolters Kluwer Tax & Accounting. "A Schedule C would only not be required if the sole proprietor had no income or loss for the year," he says.
How to complete Schedule C
Schedule C asks for basic information about your business, including your name and address, whether you use the cash or accrual method of accounting, and whether you "materially participated" in the operation of the business during the tax year. It also asks if you made any payments that would require you to file a form 1099. If you paid any non-corporate contractors more than $600, you will need to issue them a 1099 in order to be able to deduct the expense.
To accurately fill out the other sections of the form — income, expenses, and the cost of goods sold (if that applies to your business) — you're likely to need several documents or receipts on hand.
"Many self-employed people receive Form 1099-NEC or Form 1099-MISC when they make $600 or more" from a single payer, Seale says. You may also receive a Form 1099-K. The IRS receives copies of these forms and will match the figures to what you report on Schedule C.
Keeping your own income records is crucial, since businesses are only required to send 1099s if they paid an individual at least $600. If you don't receive a 1099, it "doesn't mean you get to skip reporting the income," Seale says. "This is a very common mistake the first-time self-employed make."
Here's a rundown of the documents you need to complete Schedule C:
Business income forms
- Form 1099-NEC: non-employee compensation totaling $600 or more
- Form 1099-K: income from payment apps or online marketplaces (e.g. Venmo) totaling $600 or more
- Form 1099-MISC: rents, prizes and awards, and other income payments you received totaling $600 or more
Business expenses
You are allowed to deduct all expenses that are considered ordinary and necessary for you to run your business. Common expenses include:
- Insurance (other than health)
- Health insurance (deductible as an adjustment if you have a profit on Schedule C and don't have it from another source)
- Utilities
- Legal and professional services
- Car and truck expenses
- Advertising
- Travel and meals
- Supplies
Cost of goods sold (if applicable)
- Inventory value at the beginning and end of the year
- Cost of supplies, materials, and labor
After reporting your income and expenses, the form provides instructions for calculating your net profit or loss.
Schedule C frequently asked questions
Do I have to file a Schedule C?
If you earned income from a person or business that does not pay you as a full-time employee, you generally need to report that income on Schedule C. That includes all manner of independent contractors, from ride-share drivers to freelance writers.
Who shouldn't file a Schedule C?
A sole proprietor or single-member LLC with no profit or loss for the year does not need to file Schedule C. Also, if your only self-employment income is from a hobby, you may not need to file Schedule C.
What happens if you don't file a Schedule C?
If you don't file Schedule C then you won't be able to calculate your self-employment tax or deduct any expenses related to your business. If you received any 1099-NEC, 1099-MISC or 1099-K income and don't include the Schedule C in your return, you will get a notice from the IRS including the gross income into your taxable income.
What is a Schedule C red flag?
Self-employed people who report very high income — or conversely, claim large losses — on Schedule C could be at risk of an audit. Excessive deductions could be a red flag too.