Schedule C: Who has to file it and how it works

Self-employed people have some extra work at tax time compared to their counterparts who receive a W-2 — and that often includes filling out Schedule C. This form is for reporting a profit or loss that you made as a freelancer or sole proprietor, and it should be attached to your Form 1040 when you file your taxes.

What is Schedule C?

Schedule C is where you report income and expenses for your small business as a freelancer or self-employed person, or as someone with a side hustle. The form is attached to Form 1040 (usually electronically), which most U.S. taxpayers use to file an annual income tax return.

Keep in mind that Schedule C isn’t the only tax form freelancers or self-employed people have to fill out. You’ll usually have to accompany Schedule C with Schedule SE, which you use to calculate your self-employment tax, aka the Social Security and Medicare taxes you owe based on your income.

Freelancers also typically deal with 1099 forms, which are issued by organizations (like a self-employed person’s clients) to report non-employment income. You’ll probably need the information on your 1099 forms to fill out Schedule C.

Who should file Schedule C?

The IRS says that a taxpayer should fill out Schedule C if they are a sole proprietor. You can be a sole proprietor even if you haven’t registered your business anywhere, and even if you run it under your own name.

An operation is a business if, in the eyes of the agency, your “primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.” See the IRS Schedule C instructions for more. (Income from a non-business can be reported on Form 1040’s Schedule 1.)

There are several business structures — C corporation, S corporation, limited liability company (LLC), to name a few — but the main types of businesses required to fill out Schedule C are sole proprietors and single-member LLCs.

A sole proprietor is someone who owns an unincorporated business by themselves. Put simply, it’s a one-person business or side gig in which you take home the profits but are also responsible for any debt. See this IRS page on sole proprietorships.

A single-member LLC separates your business liability from your personal liability, and is owned by one person. A single-member LLC can look a lot like a sole proprietorship in practice, but they have different business structures on paper.

What do you need to fill out Schedule C?

Before you start filling out the form, gather the necessary information. This will include general business information, like your business name, address and employer identification number (EIN), if you have one. (Many sole proprietors use their own Social Security number for their business entity.)

You’ll also need records of the business income you earned, plus business expenses and, if applicable, the cost of goods sold.

How do you fill out Schedule C?

Follow these steps when filling out Schedule C.

• Fill in the identifying information at the top. For “accounting method,” choose whichever method matches your business. For example, “cash method” simply means you account for income only after you receive it (rather than when you complete the work) and you register expenses only after you pay for them.
• Part I: This is where you input your gross income (how much money you pulled in).
• Part II: Next up is reporting your expenses. There are many types of business expenses you might be able to claim, including advertising costs, car and truck expenses, office expenses, rent, repairs and maintenance, travel and utilities. Be sure to check out the Schedule C instructions for examples of possible expenses to claim. The more eligible expenses you can claim, the more you can reduce your taxable income, and thus the smaller your tax bill will be. The form prompts you to add up your expenses and subtract them from the gross income you calculated in Part I to arrive at your net profit.
• Parts III, IV and V: These sections are for calculating specific items that you then add to Part I or Part II, above. Those items include cost of goods sold, car or truck expenses, and business expenses that weren’t included earlier.

Where can I find Schedule C?

You can download Schedule C and any other tax forms you need from the IRS website, which is where you can also find instructions on filling out the form. Because of the complex nature of filing taxes as a self-employed person — which can include knowing the ins and outs of filing as a certain business structure and including multiple 1099s — many freelancers turn to a tax professional for help.

You can also use tax filing software such as H&R Block or TurboTax. TurboTax in particular is a good option for freelancers since it has a user-friendly design, can import tax forms from banks and employers, reviews your return for missing details and more. It was also Bankrate’s choice for best tax software for beginners.