IRS Schedule C and Schedule E are used to report different types of income on an individual income tax return. The distinction between these schedules depends on how the activity is classified under federal tax rules, not simply on the source of the income.
Purpose of Schedule C
Schedule C is used to report income and expenses from a trade or business operated by an individual. It focuses on active business activity where the individual carries on operations directly and reports the resulting profit or loss.
Purpose of Schedule E
Schedule E is used to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, and trusts. These activities follow different reporting frameworks and are not treated as sole proprietorship business activity.
How the Classification Affects Reporting
The classification of income determines which schedule is used and how the income is integrated into the individual return. Business activity reported on Schedule C follows a different structural path than rental or pass-through income reported on Schedule E.
Why Income Is Not Interchangeable Between Schedules
Income reported on Schedule C and Schedule E is subject to different rules, calculations, and follow-on schedules. This is why income types must be reported on the correct schedule rather than combined.
Related Comparisons and Guidance
A comparison between Schedule C and Schedule F is available in Schedule C vs Schedule F. General eligibility rules for Schedule C are explained in Who Needs to File IRS Schedule C, and a full overview of Schedule C is available in IRS Schedule C Overview.
Official Reference
The official definitions and reporting rules issued by the Internal Revenue Service are available in the reference entry at IRS Form 1040 Schedule C.