IRS Schedule C is the form used by individuals to report income and expenses from a trade or business operated as a sole proprietorship. It is completed and filed with Form 1040 and determines the net profit or loss from business activity that becomes part of an individual income tax return.
What Schedule C Is Used For
Schedule C is used when business activity is carried on directly by an individual rather than through a partnership or corporation. The form provides a standardized structure to report gross receipts, cost of goods sold, business expenses, and the resulting profit or loss. This allows business activity to be reported separately from wages, rental income, investment income, or farming income, each of which follows different reporting rules.
Who Needs to File Schedule C
Schedule C is required for individuals who meet specific classification rules under federal tax law. This includes most sole proprietors, certain statutory employees, and owners of single-member limited liability companies treated as disregarded entities. Detailed eligibility rules are explained in Who Needs to File IRS Schedule C, with special cases covered in Schedule C With No Income, Single-Member LLC Treatment Under Schedule C, and Statutory Employee Income and Schedule C.
How Schedule C Is Filed With Form 1040
Schedule C is not filed separately. It is completed as part of the individual income tax return and submitted together with Form 1040. The profit or loss calculated on Schedule C flows into the main return and can affect other schedules. The filing relationship is explained in How Schedule C Relates to Form 1040.
How to Complete Schedule C
Schedule C follows a defined sequence that mirrors how business activity is reported. Income is reported first, followed by cost of goods sold when applicable, then business expenses, and finally the calculation of net profit or net loss. A full step-by-step walkthrough is provided in How to Complete IRS Schedule C. Guidance on preparing before filling out the form is available in Schedule C Checklist, and illustrative form layouts are shown in Schedule C Examples.
Understanding the Official Instructions
The Internal Revenue Service provides detailed official instructions for Schedule C in PDF format. An overview of how those instructions are organized and how to navigate them efficiently is available in Schedule C Instructions Overview, with a detailed explanation of each part of the form in Schedule C Line-by-Line Explanation.
Income, Expenses, and Business Results
Several key concepts determine how amounts are reported on Schedule C. Gross receipts and business income are explained in Gross Receipts and Business Income. Ordinary and necessary expenses are covered in Business Expenses in Schedule C, while inventory-related costs are addressed in Cost of Goods Sold in Schedule C. How these elements combine to produce a net profit or loss is explained in Understanding Profit and Loss.
What Happens After Schedule C Is Completed
The net profit or loss from Schedule C is carried into the individual tax return and may trigger additional reporting, including self-employment tax. How Schedule C results interact with other schedules is explained in Schedule C and Schedule SE. Filing timing is covered in Schedule C Due Date, and common filing issues are discussed in Common Schedule C Mistakes.
Limits and Special Rules
Business income or loss reported on Schedule C may be subject to additional limitations and special rules. These include passive activity limits, at-risk rules, and excess business loss limitations. Overviews of these rules are provided in Passive Activity Limits, At-Risk Rules, and Excess Business Loss Framework.
Alternative Reporting Paths
Not all income earned by an individual is reported on Schedule C. Rental and royalty income and farming income follow different reporting paths and use different schedules. Key differences are explained in Schedule C vs Schedule E and Schedule C vs Schedule F.
Official Reference
The official form and downloadable instructions issued by the Internal Revenue Service are available in the reference entry at IRS Form 1040 Schedule C.