Self-employment offers many benefits, but it also brings additional tax responsibilities. One of the key forms you’ll need to file as a sole proprietor or single-member LLC is Schedule C, which reports your business’s profit or loss.
What is Schedule C?
Schedule C, formally titled “Profit or Loss from Business (Sole Proprietorship),” calculates your business’s net profit or loss for tax purposes. It’s required if you’re self-employed, whether you run a full-time business or a side gig. Single-member LLCs also file Schedule C unless they’ve chosen to be taxed as a corporation.
Who Needs to File Schedule C?
If you are self-employed, you’ll need to file Schedule C with your Form 1040. This applies to sole proprietors, single-member LLCs, statutory employees, and owners of qualified joint ventures.
Key Differences Between Schedule C and W-2
A W-2 is for employment taxes, issued by employers to employees. Schedule C is used by sole proprietors and single-member LLCs to report business income and expenses. If you have a side gig in addition to a day job, you’ll receive a W-2 from your employer but still need to file Schedule C for your business income.
Filing Schedule C
There are several ways to file Schedule C:
- IRS Website: Download and fill out the form directly.
- Tax Software: Programs like TurboTax and H&R Block offer access to Schedule C, although you may need to upgrade to a paid version.
- Tax Professionals: Consulting an expert can simplify the process and ensure accuracy.
What You’ll Need
To fill out Schedule C, you’ll need to gather:
- Your business’s income statement and balance sheet
- Receipts for expenses
- Inventory records (if applicable)
- Mileage and vehicle-related logs (if applicable)
Completing Schedule C
The form is divided into sections:
- Part I: Income – Report gross receipts or sales and other business income.
- Part II: Expenses – Record business expenses such as office supplies, travel, and vehicle expenses. Be sure to keep documentation for all claims.
- Part III: Cost of Goods Sold – This section is for businesses that maintain inventory.
- Part IV: Vehicle Information – Required if you claimed vehicle expenses.
- Part V: Other Expenses – Include any business-related expenses that don’t fit into earlier categories.
Schedule C Tips
- Organize Your Records: Keeping detailed records throughout the year will make filing easier.
- Multiple Businesses: You’ll need to file a separate Schedule C for each business or side gig.
- Seek Professional Help: If you’re unsure about anything, consult a tax professional to avoid mistakes.
Filing Schedule C may seem complicated, but with proper preparation and organization, you can efficiently manage your self-employment taxes.
What Is Schedule C and Who Has to File? | Small Biz Ahead (thehartford.com)
