Building Your Business Business Taxes What Is IRS Schedule C? By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 20, 2022 Fact checked by Lars Peterson Fact checked by Lars Peterson Website Lars Peterson is a veteran personal finance writer and editor with broad experience covering personal finance, particularly credit cards, banking products, and mortgages. He has been writing and editing for more than 20 years and has a knack for digging deep into a subject so he can make it easier for others to understand. As an editor for The Balance, he has assigned, edited, and fact-checked hundreds of articles. learn about our editorial policies In This Article View All In This Article How Schedule C Works What Information Do I Need? How To Fill Out Schedule C Frequently Asked Questions (FAQs) Photo: Peter Dazeley / Getty Images Definition Schedule C is the IRS form small business owners use to calculate the profit or loss from their business. That amount from Schedule C is then entered on the owner's Form 1040 individual tax return. Key Takeaways Schedule C is used by small business owners and professionals who operate as sole proprietors to calculate their profit or loss for the tax year.That profit or loss is then entered on the owner's Form 1040 individual tax return and on Schedule SE, which is used to calculate the amount of tax owed on earnings from self-employment.When filing, Schedule C should be attached to Form 1040. How Schedule C Works Schedule C, Profit or Loss from Business, requires you to provide information on you and your small business. It has a series of lines on which you enter figures that help you calculate the business's gross profit, gross income, total expenses, and, ultimately, net profit or loss. If you have a net profit for the year, you would enter the amount of profit on both line 3 of Schedule 1 of Form 1040 and on line 2 of Schedule SE, which is used to calculate the amount of tax you owe on earnings from self-employment. If you have a net loss and your entire investment in the business is at risk, you would enter the amount of the loss on both line 3 of Schedule 1 of Form 1040 and on line 2 of Schedule SE. If only some of your investment is at risk, you must fill out Form 6198, At-Risk Limitations. IRS / The Balance Who Uses Schedule C? Schedule C is completed by those who have received income from a business they ran or a profession they practiced as a sole proprietor. The IRS defines a business as an activity whose primary purpose is to produce income or profit. The business activity must also be done regularly. If you do the activity only occasionally and it's not done for profit, it's not a business. A sole proprietorship is the default business type. If you have a business that you own by yourself and it is not registered with your state as a corporation or a limited liability company (LLC), you’re its sole proprietor. If you have registered your company as a single-member LLC, you would use Schedule C if you have not elected to pay income taxes as a corporation instead. If you and your spouse run a business together as a partnership with no other owners and you file a joint tax return, you can declare the business to be a qualified joint venture for tax purposes. You would both fill out a Schedule C and you can then file a single Form 1040 instead of the more complicated partnership tax return. Note If you own more than one business, you must complete a Schedule C for each of them. Certain independent contractors who are considered by law to be employees for tax purposes must also complete Schedule C. These so-called statutory employees include drivers who distribute beverages other than milk or meat, vegetable, fruit, or bakery products and full-time life insurance salespeople who work primarily for one company. For a complete explanation of workers who are considered to be statutory employees, see the Statutory Employees page of the IRS's website. What Information Do I Need to Complete Schedule C? You will need the following information to complete your Schedule C: A profit and loss statement, sometimes called an income statement, for the tax year A balance sheet for the tax year Statements relating to the purchase of any business assets during the tax year, including vehicles, equipment, and property Information on inventory to prepare a cost of goods sold (COGS) calculation if your business sells products Details on travel, car/truck, meal, and home business expenses How To Fill Out Schedule C To complete Schedule C, first fill in the information about your business at the top of the form. The codes for business or professional activities, one of which you will enter in box B, are found on the last two pages of the instructions for Schedule C. For more information on Forms 1099, which are mentioned in questions I and J, see the IRS's General Instructions for Certain Information Returns. There are several different types of Form 1099, which is categorized by the IRS as an information return. Part I: Income If you sell products and have an inventory, you will need to complete Part III: Cost of Goods Sold (COGS) before you can fill in Part I. You will then subtract both returns and allowances and your COGS from your gross receipts or sales to get your gross profit. Next, add any other income, including finance reserve income and state or federal gasoline or fuel tax credits or refunds, to arrive at your gross income on line 7. For a more complete description of what constitutes "other income," see page 6 of the Instructions for Schedule C, Profit or Loss From Business. Part II: Expenses Fill in all of your deductions for business expenses in Part II. If you have expenses that weren't categorized in Part II, enter them in Part V: Other Expenses and add them up. Put the total on line 48 in Part V and on line 27a in Part II. Add all the expenses you've now recorded in Part II and enter the figure on line 28. Subtract line 28 from line 7 for the tentative profit or loss on line 29. If you are claiming expenses from using your home for your business, enter them on line 30. You may use the simplified method that consists of multiplying the square footage of your home that was used for the business by $5 or you may use a more complicated method that requires filling in Form 8829 using the instructions provided by the IRS. Finally, subtract line 30 from line 29 to end up with your net profit or loss. Part III: Cost of Goods Sold This part of the form is necessary to determine your gross profit. It includes line items such as inventory, purchases, and materials. Part IV: Information on Your Vehicle If you claimed car or truck expenses on line 9 of Part II and are not filling out Form 4562, Depreciation and Amortization, the IRS requires you to provide the information in this part, including: The date you began using the vehicle for your business The number of miles you drove the vehicle for business, commuting, and other reasons Information about your personal use of the vehicle Whether you have written evidence to support your deduction You are required to fill out Form 4562 only if you are including the depreciation in the value of your vehicle in your business's car or truck expenses. Note Businesses sometimes get into tax trouble because they don't have supporting evidence for business vehicle expenses. Carefully track your business miles and the other miles you put on the vehicle. Frequently Asked Questions (FAQs) How do I file Schedule C? You must file Schedule C along with your Form 1040. If you are filing by mail, you should attach Schedule C to the form. The easiest (and also the safest) method to file your tax forms is filing them electronically. How do I correct a mistake on Schedule C? If you realize you have made an error, you must file a corrected Schedule C as part of an amended personal tax return, Form 1040-X. For a credit or a refund, you have three years from the original file date to file the correction. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "Schedule C: Profit or Loss From Business." Internal Revenue Service. "Schedule C, Profit or Loss From Business." Internal Revenue Service. "Instructions for Schedule C, Profit or Loss From Business," Page 1. Internal Revenue Service. "Sole Proprietorships." Internal Revenue Service. "Instructions for Schedule C, Profit or Loss From Business," Page 2. Internal Revenue Service. "Instructions for Schedule C, Profit or Loss From Business," Page 3, Internal Revenue Service. "Statutory Employees." Internal Revenue Service. "Instructions for Schedule C: Profit or Loss From Business," Page 16. Internal Revenue Service. "Electronic Filing Options for Business and Self-Employed Taxpayers." Internal Revenue Service. "Instructions for Form 1040-X."