Tax season is an unavoidable part of running a business. And for many small businesses, the Schedule C tax form is an integral part of tax season. But what is Schedule C, and how do you file one?
In this guide, we’ll walk through the basics of Schedule C, including what it is, how to file one, and more.
IRS Schedule C (Form 1040), or the Profit and Loss from Business form, is the tax form some small businesses use to report their qualifying income and expenses for the year. This form helps the business determine its total taxable income by comparing the business’s gross income and eligible expenses.For many taxpayers, Schedule C is just one small part of a federal income tax return; it’s the form individual owners of a pass-through business use to file their federal small business taxes.
There are a few types of businesses that file a Schedule C at tax time.
As shown in the subtitle of the form, the most common type of business that files Schedule C is the sole proprietorship. This includes regular “mom and pop” shops, freelancers, independent contractors, and so on. Basically, if you engage in your business activity for the purpose of profit and do so regularly, you generally qualify as a sole proprietor, and you’ll use Schedule C for taxes.
There are a few exceptions to this. For example, you’ll use Schedule E for rental income. Schedule F is used for business profits from farming. If you’re not sure which form to use, we highly recommend consulting with a tax professional for assistance.
Even though a single-member limited liability company (LLC) is classified as a separate legal business entity, it’s called a disregarded entity by the IRS. That means single-member LLCs are taxed like sole proprietorships, so the tax burden passes through to the sole owner. And in turn, they file Schedule C to report their business income taxes.
Some spouses can treat an unincorporated business as a qualified joint venture for tax purposes if they meet certain criteria. Qualified joint ventures can use Schedule C. To qualify, each spouse needs to participate materially in the business, and be the only owners of the business. Plus, the spouses must file a joint return.
If a couple owns an unincorporated business in a community property state, they may be able to treat the business as a sole proprietorship for tax purposes. Normally, they’d be treated as a partnership instead. The criteria for this is a bit different from a qualified joint venture, so we recommend consulting with a tax professional for insight on your unique situation if you’re not sure which one is right for your business.
In principle, Form 1040 is a relatively simple form: you add up your total gross income and subtract your qualifying expenses. This gives you your total taxable income. Granted, the form goes into a lot more detail, including listing different types of expenses like office supplies, insurance, employee wages, inventory, and more. You’ll also need to provide basic information about your business, including your Social Security number and employer identification number (EIN), your accounting method (accrual or cash method), business address, and more.
While you’re filling out the form, make sure you’re making accurate tax deductions and write-offs. Some businesses are allowed to use the Schedule C-EZ form, a simplified version of the form, too.
You’ll formally file this form by April 15 with the rest of your tax return. That said, if you make $500 or more with your business revenue, you’ll be required to make quarterly estimated tax payments every quarter. These taxes will be based on your total tax due from Schedule C.Estimated tax payments replace the withholding taxes that an employer would make on your behalf. But as a self-employed worker, it’s your responsibility to “withhold” your own income tax and pay it through quarterly estimated tax payments. The same goes for self-employment taxes (Social Security and Medicare taxes).
Here at ZenBusiness, we understand that handling business taxes can be overwhelming. And while we can’t file your taxes for you, our Money App can help streamline your finances so it’s easier to manage taxes. The Money dashboard can make it simple to calculate all your expenses, your income, your pending invoices, and more — all in one place. With that support, you’ll be done with your taxes in no time. Or, if you’re just starting out, we can help you get an LLC.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
IRS Schedule C is a section of a personal tax return. Sole proprietorships, single-member LLCs, and a few other business owners use it to report their income and losses.
You can fill out your own form if you want to. A lot of small business owners use tax software or hire an accountant to handle taxes for them, though. We highly recommend at least consulting with an accountant if you have business tax questions. Ultimately, how to file is your call — as long as you’re filing your taxes appropriately and on time.
“LLC” stands for limited liability company, which is a business structure. Schedule C is a tax form that is used by certain business entities — including some LLCs — to report business income and losses.
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