Schedule C (1040) 2024-2025

When To Use Fillable Schedule C 2024 - 2025

Schedule C is an addition to Form 1040 for:

• 1. Small business owners;
• 2. Independent contractors;
• 3. Freelancers;
• 4. Statutory employees;
• 5. People who earn money from a hobby.

Businesses and professionals who work as sole proprietors use it to report income or loss for a year. It's also known as Profit or Loss From Business for Sole Proprietorship.

Per Internal Revenue Service, the profit or loss statement should be filed if your activity qualifies as a business:

• 1. The main purpose of the activity is meant for income or profit.
• 2. The activity is continuous and regular.

The most common examples of self-proprietors are financial consultants, freelance designers, writers, photographers, artists, local bakeries, small shops, etc.

Note:

You don't have to fill out Schedule C if you earned a one-time-only payment of less than $600 for your hobby and didn't receive a 1099 Form for this payment. In all other cases, you should use Schedule C if you received income shown on 1099-NEC or 1099-MISC.

Schedule C Due Dates

Schedule C is due on the same date as your tax return. If you file your tax return electronically, you have until the due date of the return (including extensions) to file Schedule C.

In 2024, the tax return is due on April 15 unless you file for an extension. If you file Form 4506-T, you can get a 6-month extension and submit your tax return on October 15.

How To Fill Out a Schedule C Form 1040

Step 1: Prepare information

This step is crucial to accurately reporting your income and expenses, which affects your tax liability and potential deductions. Here's how to prepare:

• 1. Gather Basic Information such as your SSN or EIN, business name, address, accounting method (usually cash or accrual), and IRS business code that accurately describes your type of business.
• 2. Collect records of all business income received during the year. This includes sales of goods, services rendered, and other income sources related to your business activity.

Note:

Make sure to include online sales with all the returns or allowances.

• 3. Gather all your expenses: receipts, invoices, bank and credit card statements, and records of all business-related expenses.
• 4. Categorize your expenses as accurately as possible (e.g., advertising, supplies, utilities, home office expenses).
• 5. If your business sells products, you must record inventory at the beginning and end of the year. This helps calculate the cost of goods sold (COGS), which is crucial for businesses with inventory.
• 6. If you use your vehicle for business, maintain a detailed log of business-related mileage, gas, repairs, insurance, and other associated costs.
• 7. If you use part of your home exclusively for business, measure the square footage of your workspace to calculate the deduction accurately.
• 8. If you filed a Schedule C for 2022, review it. It can serve as a helpful guide in organizing your records and ensuring consistency in reporting.

Having all your Schedule C information ready ahead of time will make the whole process a lot easier for you. You'll catch all the deductions you deserve and get your taxes right. Think of it as doing future-you a solid for a relaxed tax filing.

Step 2: Get Printable Form 1040 Schedule C

Click the “Fill out Schedule C” button and start the process right there in the user-friendly editor with the support of AI Assistant.

Step 3: Start with your business info

Provide your personal information and the data on business or profession:

1. Name of proprietor: Write your full name here.
2. SSN: Enter your Social Security Number.
3. Line A: Describe your main business or professional activities and the product or service for which you receive income.

Note:

If you have multiple business or professional activities, complete separate Schedule C for each.

1. Line B: Find an IRS code for your business activity and write it here.
2. Line C: If your business's name differs from yours, add it here.
3. Line D: Write your Employer ID Number, if you have one.
4. Line E: Provide your business address. If you have a home office, then specify your home address here.

In this example, David Brown is a freelance graphic designer. He fills out his name, SSN, writes about his professional activity, and finds his business code in the IRS instructions.

He leaves lines C and D blank because he doesn't have EIN or a separate business name. Then writes his home office address on Line E.

Step 4: Accounting method and questionnaire

First of all, choose the accounting method that applies to you. Here are the simple explanations:

1. Cash Method: Imagine your business as a giant piggy bank. Every time someone puts money into it (pays you for your goods or services), you count that as income. And each time you take money out to pay for something (expenses), you count that as an expense. You only record the money when it moves in or out, like real cash changing hands.
2. Accrual Method: Think of your business as keeping a diary this time. Every time you make a sale or provide a service, even if you have yet to be paid, you write it down as income. And whenever you receive a bill or owe money for expenses, even if you still need to pay it, you mark it as an expense. Here, it's all about when the income or expense happens, not when the cash is exchanged.
3. Other Methods: This is like a mix-and-match approach. There are special rules for certain types of businesses or situations where both the cash and accrual methods partially capture what's going on. These could involve different ways of recording income or expenses based on the specifics of the business or industry.

Next, check the boxes answering the questions on Lines G - J.

David chooses a cash accounting method as he receives payment for his services as soon as he finishes the job and doesn't issue invoices for his work. And answers all the questions.

Step 5: Income section

In this section, we calculate our business's gross profit and gross income:

1. Line 1: Calculate your gross receipts, 1099s, or sales during the year. In this example, David gathered all the 1099s that his clients sent him and got the amount of $50,000.
2. Line 2: If you did any refunds to your customers during the year, calculate the amount and report them here.
3. Line 3: Calculate your total income by subtracting line 2 from line 1. Since David had no returns, he copied the amount from line 1.
4. Line 4: To complete this line, you would need to move to Part III of the form and calculate the cost of goods sold. This calculation is needed only if your business or profession requires inventory, materials and supplies, and labor expenses. David has none of this, so he skips Part III and Line 4.
5. Line 5: Calculate a gross profit by subtracting line 4 from line 3 and write the amount here. In our case, it's still $50,000.00.
6. Line 6: Report any other income, such as interest or rental. Since David had no other income this year, he left this blank.
7. Line 7: Subtract line 5 from line 6 and enter the gross income. It's still $50,000.00 in our example.

Step 6: Expenses section

In part II, you need to report and calculate all your expenses. This is where you list and add up all the costs of running your business throughout the year. Think anything from rent for your office space, utilities, advertising, supplies, travel expenses, and insurance premiums to payments for professional services. This section helps you detail the money you've spent to keep your business going and can significantly impact your taxable income by lowering it.

Note:

When you produce or acquire property for resale, certain costs must be capitalized. This means they should be reported in Part III instead of Part II and V. The only exceptions are small businesses and artists, as per Publication 538.

Here is an example of an expense list for our freelance graphic designer, David:

• 1. Line 8: $2,000.00 - for advertising on social media.
• 2. Line 16a: $1,120.00 - 7% of the home mortgage interest (the home office percentage of all home's square footage)
• 3. Line 18: $1,300.00 - for software subscriptions and laptop expenses.
• 4. Line 25: $380.00 - for 30% of utilities (phone and internet bills).

Step 7: Calculate net profit or loss and home office deductions

At the end of Part II you are supposed to figure out whether your business brought you profit or loss this year and calculate the amount you can deduct for business use of your home:

1. Line 28: Add lines 8 - 27 to calculate total expenses and write the amount here. For David, it’s $4,800.
2. Line 29: Subtract line 28 from line 7 to calculate your profit or loss. In our example, it's $45,200.
3. Line 30: If you decide to use the simplified method worksheet for the business use of your home, you should write the total square footage of your home and the part you use for your home office. Finally, you should write the amount you got after completing the worksheet. Here, we use the simplified method and get 0 deduction.
4. Line 31 or 32: Subtract line 30 from line 29, and if you get a positive amount, congratulations! Your business is profitable. Write the amount on line 31. If the amount is negative, you should choose whether this loss puts all your investments at risk or not and show the amount of loss on forms specified in Schedule C.

Note:

If you would like to deduct the use of your home for business, you should fill out Form 8829 and don't add these expenses to Schedule C Part II.