Schedule C (Form 1040) is the IRS form used by sole proprietors, single-member LLC owners, freelancers, and gig workers to report business income and expenses. This comprehensive guide explains how to complete Schedule C line by line, who must file it, key deadlines, penalties, and the most common filing mistakes. If you operate a non-incorporated business, understanding Schedule C is essential for accurate tax reporting and minimizing your tax liability.
What Is Schedule C?
Schedule C is the tax form used to report income and expenses for a sole proprietorship or single-member LLC. If your business is not incorporated and you have not elected S-corp taxation, the IRS treats your activity as a sole proprietorship. All income and expenses flow directly to your personal tax return using Schedule C.
The form calculates your net profit or loss, determining both your income tax and your self-employment tax.
Who Must File Schedule C?
You must file Schedule C if you earned income from a trade or business you operate as a sole proprietor. This includes:
- Sole proprietors
- Single-member LLCs (default classification)
- Freelancers, independent contractors, gig workers, and consultants
- Anyone receiving income reported on Form 1099-NEC, 1099-K, or 1099-MISC
- Gig economy workers (Uber, Lyft, DoorDash, Airbnb hosts, Instacart, etc.)
- Online sellers using Etsy, Shopify, eBay, or Amazon
- Individuals with business income even without receiving a 1099
- Businesses with zero profit or a loss
Do NOT file Schedule C if you are:
- An S-corp or C-corp
- A partner in a partnership (use Form 1065 and Schedule K-1)
- A W-2 employee with no business activity
How to Complete Schedule C (Line-by-Line Instructions)
Schedule C has five parts:
- General Information
- Income
- Expenses
- Cost of Goods Sold
- Other Expenses
Below is a breakdown of each part.
Part I — Income (Lines 1–7)
Report all gross receipts earned from your business. This includes:
- All income reported on Form 1099-NEC, 1099-K, or 1099-MISC
- Payments received through cash, checks, Venmo, PayPal, Zelle, ACH, or other platforms
- Gross receipts entered on Line 1
- Refunds or returns reported on Line 2
- Other business income such as grants, tax credits, or incentives on Line 6
Line 7 will display your Gross Income.
Important update: Form 1099-K is required for payment platform income exceeding $5,000 in 2025. More payment providers are reporting income than in previous years—ensure full reporting accuracy.
Part II — Expenses (Lines 8–27)
List ordinary and necessary business expenses to reduce your taxable profit. Common deductible categories include:
- Advertising (Line 8): Websites, social media ads, branding
- Car and Truck Expenses (Line 9): Mileage or actual vehicle expenses
- Contract Labor (Line 11): Fees paid to freelancers or subcontractors
- Depreciation (Line 13): Equipment and major purchases
- Insurance (Line 15): Business-related insurance policies
- Legal and Professional Fees (Line 17): CPAs, attorneys, consultants
- Office Expenses (Line 18): Office supplies, software, subscriptions
- Rent (Line 20): Office or equipment rentals
- Repairs (Line 21): Repair of business equipment
- Supplies (Line 22): Consumable materials used in business
- Travel (Line 24a): Lodging and transportation
- Meals (Line 24b): 50% deductible if business-related
- Utilities (Line 25): Internet, phone, electricity
- Wages (Line 26): For businesses with employees
Enter totals for each expense category in Lines 8–27.
Part III — Cost of Goods Sold (COGS) (Lines 33–42)
Complete this section only if you sell products or manufacture items. COGS includes:
- Inventory purchased for resale
- Raw materials
- Direct production labor
- Shipping and storage
- Supplies used in manufacturing
You must calculate:
- Beginning inventory
- Purchases
- Cost of labor
- Materials and supplies
- Ending inventory
The final COGS amount flows to Part I, Line 4.
Part IV — Information on Your Vehicle (Lines 43–47)
Complete this part if you claim vehicle-related deductions. The IRS requires accurate documentation for:
- Total miles driven
- Business miles
- Commuting miles
- Personal miles
- Whether you used another vehicle
- Whether you maintained a mileage log
Mileage must be substantiated; estimates are not acceptable.
Part V — Other Expenses (Line 48)
Document any legitimate business expenses not included elsewhere, such as:
- Bank or merchant fees
- Domain names and web hosting
- Accounting and bookkeeping software
- Business gifts (limited to $25 per person per year)
- Professional membership dues
Attach an additional page if you need more space.
When Is Schedule C Due?
Schedule C is due April 15, 2025, along with your Form 1040.
If you need extra time, file Form 4868 for an automatic extension until October 15, 2025.
Note: An extension to file is not an extension to pay. Taxes owed must be paid by April 15 to avoid penalties.
Sole proprietors may also need to make quarterly estimated payments using Form 1040-ES.
Penalties for Filing Schedule C Incorrectly
The IRS closely monitors Schedule C filers, and errors can lead to:
- 20% accuracy-related penalties for overstated deductions
- Late filing penalties
- Underpayment penalties for self-employment tax
- Interest on unpaid taxes
- Increased audit risk
Audit risk is highest for:
- High expenses with low income
- Repeated business losses
- Cash-heavy businesses
- Poor or missing records
Need Help Filing Schedule C?
Schedule C filings receive close IRS scrutiny, especially for freelancers, gig workers, and LLC owners. If you need assistance determining allowable deductions, calculating home office expenses, or deciding whether an S-corp election would reduce your tax burden, Dimov Tax & CPA Services can help.
We provide:
- Full Schedule C and Form 1040 preparation
- Bookkeeping and accounting for sole proprietors and LLCs
- IRS audit support and penalty relief
- Business structure consulting and tax planning
Contact Dimov Tax & CPA Services today to ensure your Schedule C is accurate, compliant, and optimized for tax savings.
Frequently Asked Questions
Do I need to file Schedule C if I earned only a small amount?
Yes. Any business income must be reported, no matter how small.
Do LLC owners file Schedule C?
Single-member LLCs file Schedule C unless they elect S-corp or C-corp status.
Can I deduct home office expenses?
Yes, if the space is used regularly and exclusively for business.
Do I pay self-employment tax on Schedule C income?
Yes. Self-employment tax (15.3%) is calculated on Schedule SE.
What if I have multiple businesses?
You must file a separate Schedule C for each business.