Are you starting a business venture this year or in the beginning of 2019? Get off to a good start by familiarizing yourself with the Schedule C tax form.
What Is a Schedule C Tax Form?
The Schedule C tax form is used to report any profit or loss from an unincorporated sole proprietorship.
This means that if you run a qualifying business (which we’ll discuss in a moment) and received self-employment income, you’re required to fill out and file a Schedule C in addition to your Form 1040 with your income tax return.
Schedule C is the tax form for sole proprietors and for filing self-employed taxes. It is also a freelancer tax form, appropriate for everyone from graphic artists to freelance CPAs to writers.
So, what qualifies as a business?
In order to be considered business income, the primary goal must be to generate profit or income. You must also be engaged in activities related to the business on a regular, continual basis.
According to these guidelines, the IRS expects you to report income from both primary and secondary self-employed income.
Simply put, you’ll need to report any self-employed income, whether it serves as your primary income source or as a side gig. However, you are not required to report a profit or loss from a hobby.
There are a few other uses for a Schedule C form, including:
- Reporting wages and earnings of a statutory employee
- Reporting income and deductions for joint ventures
- Reporting some types of income on a 1099-MISC
Who Needs to File a Schedule C Form?
Schedule C forms are for unincorporated businesses not identified as other entities under the tax code, according to the IRS. This means the owners of sole proprietorships should file a Schedule C to report profits as well as losses.
Do you own and operate your own business? Are you self-employed? If so, you’ll need to file a Schedule C form to report your profits or losses.
If you drive for Uber or Lyft, host on AirBnb, work as a freelancer on a platform like Upwork or Fiverr, or earn income from another avenue of the sharing economy, you’ll need to file the income you earned using a Schedule C form.
Do you run multiple sole proprietorships? You’ll need to use a separate Schedule C form for each business to report income or loss.
If you own a single-member LLC, you can also file a Schedule C. You can also use a Schedule C to report income or loss on a joint venture; each owner will need to file a separate Schedule C detailing their portions of the profit or loss. You may not file a Schedule C form jointly.
Reporting Profit or Loss on a Schedule C
Part I of the Schedule C is used to calculate and report gross income from the business. This is a necessary calculation for all businesses filing a Schedule C form, and other types of tax forms as well.
All businesses, regardless of their size, are required to calculate and report this figure. Fortunately, it’s a very simple process.
First, enter your gross receipts in Line 1. Next, you’ll need to subtract returns, allowances, and cost of goods sold from this figure.
This calculation will yield your profit, which you will then record in Line 5.
After you’ve calculated your profit (or loss), add in any income not already reported in Line 1 to determine your gross income for the year. You’ll then report this figure in Line 7.
Part II is used to report net profits or losses after accounting for business expenses. This gives a clearer picture of what your actual profits are for the year and is where you’ll report any and all business expenses according to each category defined by the IRS.
First, enter the expenses according to the categories listed in lines 8-26. Then, add up the total expenses and report that figure in Line 28.
You may be thinking, “That’s an awful lot of lines for business expenses.” And you’re right; the IRS asks about expenses for everything from advertising to contract labor to insurance.
It’s an exhaustive list to try to minimize any additional expenses you’ll need to claim; we’ll discuss how to go about this in a moment.
This is where automated expense tracking can be a lifesaver, and is the exact situation Everlance was created to help ease. Everlance was designed to help you record and categorize both business and personal expenses, down to the last detail, without a second thought or cumbersome extra steps..
To calculate your tentative profit, subtract total expenses from the gross income you reported on Line 7. You’ll report this figure in Line 29.
If you’ve incurred expenses for the business use of your home (through the home office deduction or other business use of your home), enter them in Line 30.
Subtract the figure from Line 30 from Line 29 to calculate your net profit or loss, and report this figure in Line 31.
Part III is to be used if buying, producing and/or selling of inventory was involved in the generation of the income being reported. This section is for sole proprietorship retailers, resellers, and individuals who produce or sell goods for profit.
Report the cost of goods sold in Line 32.
Part IV is to be used if you are claiming automotive (car or truck) expenses on Line 9 of Part II of the Schedule C form.
This is the section where you’ll enter the business mileage you’ve been tracking all year.
First, enter the date you put the vehicle into use for business purposes in Line 42. Next, enter your business mileage in Line 44.
Part V is to be used in to report “ordinary and necessary” business expenses not already reported in Lines 8-26. These might include new equipment such as a new computer, renovations to your home office, or a number of other miscellaneous expenses.
Calculate the total expenses not yet reported and record them on Lines 27a and 48
Calculating your deductions can be challenging even with the best-kept records. Give yourself the advantage of automating your mileage and expense tracking.
This will enable you to justify your deductions down to the last detail in the event of an audit, as well as allow you to calculate your deductions as you go. Everlance was built for small business owners just like you and take the guesswork out of filing your Schedule C.