Takeaways
- Schedule C is an IRS form used to report business income and expenses.
- Schedule C is required for sole proprietors and single-member LLCs.
- If you are self-employed or have a side hustle, you may need to file Schedule C.
- Many small business owners are required to include Schedule C with their taxes.
- Schedule C is filed together with Form 1040 and is used to calculate how your business profit or loss affects your overall tax liability.
What Is Schedule C?
Schedule C is a tax form used by sole proprietors and self-employed individuals to report income and expenses from their business. It is officially titled “Profit or Loss From Business” and is part of the IRS Form 1040, meaning it’s attached to your personal tax return and determines how much of the business profit is taxed as personal income.
With so many freelancers and side hustles, the IRS recently received over 35 million Schedule C filings.[1] If you operate a business as a sole proprietor or a single-member LLC, you must file Schedule C to determine how much profit your business made during the tax year. Use the net profit from Schedule C on your Form 1040, where it becomes part of your total income for the year. You must file a Schedule C even if your business did not make a profit. Reporting losses can lower your taxable income, which may reduce your tax liability.
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How Schedule C Works
Schedule C includes five main parts to capture the revenue your business generated and the expenses incurred to generate that revenue. Your business revenue minus your expenses is your business profit, which is what the form is designed to capture.
Here are the five parts to Schedule C:
- Part 1: Income - This section asks for your total business income before expenses. You will include gross receipts or sales, as well as any returns or allowances.
- Part 2: Expenses - You list and categorize your business expenses, such as advertising, office supplies, travel, or legal fees. This section also includes the cost of goods sold, if your business sells physical products.
- Part 3: Cost of Goods Sold - If your business sells inventory, this section calculates the cost of purchasing or producing those goods.
- Part 4: Vehicle Information - If you use your vehicle for business, you may deduct mileage or actual expenses, but you must provide detailed information about the car’s use.
- Part 5: Other Expenses - This section is for expenses not listed in the main section, such as education, training, or industry-specific costs.
After subtracting total expenses from your income, the result is your net profit or loss. This amount is reported on your Form 1040 and in your self-employment tax calculation on Schedule SE.
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Example of Schedule C
Who Files a Schedule C?
Filing Schedule C is limited to sole proprietors and single-member LLCs. You must file Schedule C if:
- You earned income as a sole proprietor.
- You operate as a single-member LLC not taxed as a corporation.
- You work as an independent contractor or freelancer.
- You have a side hustle or gig work (like selling on Etsy, driving for Uber, or freelance writing).
Schedule C is not limited to full-time business owners. Anyone earning income outside of a Form W-2 job through self-employment is required to file one.
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How to Fill Out Your Schedule C
Filling out Schedule C can be straightforward if you keep good records. Here is what you will need:
- Business income statements, such as 1099-NEC forms or receipts.
- A record of business expenses, such as invoices, receipts, or accounting software reports.
- Mileage logs or auto expense documentation if you use your car for business.
- Inventory reports and receipts for goods purchased or produced, if applicable.
Use IRS instructions or online tax software programs to complete the form. If your business is complex, consider consulting with a tax professional to help ensure accuracy and identify deductible expenses.
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When to File a Schedule C
Schedule C is filed with your annual federal income tax return, Form 1040. The deadline is typically April 15, unless you file for an extension. Millions of taxpayers file extensions each year, but an extension does not preclude you from paying taxes or incurring penalties for late payments.[2]
You must also file Schedule SE if your net self-employment earnings are $400 or more. This form calculates your self-employment tax, which covers Social Security and Medicare contributions.
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Schedule C vs. Schedule E
While Schedule C is for active business income, Schedule E is used for reporting passive income, such as:
- Rental property income
- Royalties
- Partnerships and S corporations
- Trust and estate income
The key difference is how the IRS classifies your work. If you actively manage or operate a business, you file Schedule C. If you collect income without active involvement, like royalties, trusts, or real estate, you likely file Schedule E.
Another major difference is the self-employment tax. Income on Schedule C is subject to self-employment tax. Most Schedule E income is not.
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Smart Summary
Schedule C is essential for sole proprietors, freelancers, and anyone with self-employment income. It reports your business’s income, expenses, and net profit or loss. The IRS uses this information to calculate how much tax you owe. If you actively run a business, even a weekend side hustle, you must file a Schedule C. Proper recordkeeping makes completing the form much easier and ensures you claim every deduction you qualify for. For more complex businesses or first-time filers, consider using online tax software programs to assist you in filing correctly.
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(1) Internal Revenue Service. Individual Income Tax Returns Line: Item Estimate 2022. Last Accessed January 22, 2026.
(2) Internal Revenue Service. IRS reminds taxpayers who filed for extensions of the Oct. 15 deadline. Last Accessed January 22, 2026.
