If you are a small business owner, freelancer, an Amazon or Etsy seller, in other words, work for yourself, then you might have to file Schedule C with your personal tax return (Form 1040). Schedule C is used to inform the IRS about the profit and loss of your sole proprietorship. For some people, managing their taxes by themselves is quite confusing. In this article, we’ll talk about what is Form 1040 Schedule C, who needs to file it, and why. We’ll also provide you with the instruction on how to complete and file this form.
What Is Schedule C?
Schedule C is a tax form that provides the IRS with information about your business’s profit and loss. The title of the form says “Profit or Loss from Business.” It needs to be filed with your Form 1040. Some people tend to mix up Schedule C with a 1099 form, but there is a difference between these documents. However, you might need the latter to complete your Schedule C.
Who Needs to File Schedule C?
Schedule C is intended to be filed by sole proprietors. Basically, if you receive $ 500 from the sale of goods or services throughout the year, you most likely need to complete and file this form. Here is a detailed list of some of the business types that need Schedule C:
- Sole proprietors (those not registered as a corporation or LLC);
- Single-member LLC (when one person owns the business, all the information about profits and income is usually filed with their personal tax return);
- A business owned by a married couple, which is called a qualified joint venture.
However, you should note the following:
- This Schedule is not suitable for the corporations of S and C types.
- Even if your work is a regular job on a daily basis, and you are not a business owner, you still have to file this form as a freelancer.
- Freelancing is considered to be business if it’s regular. So, for example, if you’re a seller on some online platform or a freelance copywriter or entrepreneur, you need to file this form.
- You may have to complete several copies of Schedule C if you have more than one gig.
How to Complete Schedule C?
Completing the Schedule C form is quite easy in 2021. There are lots of possibilities to fill out 1040 Schedule C online, which is much easier than printing it out and filing by mail after completing. But you still have to do it carefully. Here is a step-by-step instruction on how to fill out Schedule C.
1. Collect information
Schedule C is used to provide information about your business’s revenue and any expenses that take place. Here’s the information you have to include in your Schedule C:
- Income of your business and balance sheet of the year
You have to provide detailed information about your company’s income and its sources, including allowances and returns.
- Business expenses
Include information about all of the expenses of your business throughout the tax year. You’ll need to provide:
- office expenses as phone, computer, utility expenses, etc.;
- insurance like business property insurance, etc.;
- wages paid;
- business debts information (interest on leases, loans, mortgages);
- meal expenses.
- Inventory records
- Vehicle records (in case you used one)
2. Include personal information
When filling out Schedule C PDF, you have to provide your personal info, including:
- your name;
- your business and the product/service you provide;
- business name;
- business address;
- social security number;
- ID number of the employer;
- accounting method, etc.
3. Income information
In Part I of your blank Schedule C (lines 1-7), you have to provide information about your business income to calculate gross income and profit.
- To calculate net receipts, you have to subtract returns and allowances from gross receipts from the sales of your company.
- To calculate gross profit, subtract the cost of goods sold from net receipts.
- Finally, add gross profit to other income so that you get gross income.
4. Expenses information
In Part II, it is required to provide information about your business’s expenditures. In lines 8-27, you need to put in the amount of money spent on particular categories. They are listed alphabetically and include advertising, insurance, interest, office expense, supplies, wages, utilities, etc. You can add other expenses in line 27.
You also have to calculate your net profit (or loss) by adding up all of the expenses listed above and subtracting them from gross profit.
5. Information about the cost of sold goods
First, you have to provide the method you used for valuing closing inventory and some other essential information about inventory. Then, calculate the cost of goods sold. To do it, you have to add inventory at the beginning of the year to some other costs. Subtract it from inventory at the end of the year — that’s the cost of goods sold, which you put in line 42.
6. Data about the vehicle
Complete this part only if you use some vehicle for your business purposes, and you have stated it in line 9 as the car or truck expenses. In this part, you have to put in information like when your vehicle was placed in service for your business purposes, the total number of miles driven during the tax year, etc.
7. Other expenses information
In Part V, you have to list the additional expenses of your business, not mentioned in lines 8–26 and 30.
Fill Out Schedule C Carefully
It is really not that challenging to complete this form. All you need to do is find a free Schedule C Fillable form and fill in all the information about the profit and loss of your business. Take your time to calculate everything carefully so as not to make any mistakes.