What Is A Schedule C?
Independent contractors use the Schedule C form to report business income. If you’re a 1099 contractor or sole proprietor, you must file a Schedule C with your taxes. Your Schedule C form accompanies your 1040 and reports business income, expenses, and profits or losses. If you operate a business in the Sharing Economy or if you work as an independent contractor, like driving for Uber or working freelance on Upwork, the income you earn and the associated business expenses need to be reported on a Schedule C.
Click here for the IRS schedule C page, which includes downloadable copies of the form.
Schedule C Tax Form
The IRS Schedule C form is an important form for business owners and sole proprietors. After you calculate your income and expenses, your Schedule C will show profits or losses. Report this figure on your 1040 and Schedule SE to determine your total self employed tax.
If you operate more than once business, for example, you rent your home out on Airbnb and also drive for Uber, you will need to file a separate Schedule C for each business you operate.
What Is the Difference Between a Schedule C and a Business Tax Return?
A Schedule C is a schedule to your individual tax return (Form 1040) where your business shows its income and expenses. However, it is not technically a separate business return. A separate business return exists when you have a Partnership or when you file your business as an S-Corporation. These returns are filed separately and provide a Schedule K-1 that attach to your Form 1040.
One key benefit to filing a separate business tax return is that if your business is ever audited by the IRS, they will only request your business records. As a Schedule C filer, the IRS would audit your business and personal records together. This also means that if the bank requests information for your business, you need to hand over your full personal return.
Do I Need to File One?
A Schedule C is for sole proprietorships, which is a business you own by yourself and isn’t registered with your state as a specific type of business. You will also need to file a Schedule C if you are the sole member of an LLC (these are referred to as “single member LLC’s” or “SMLLC’s”. If you are a very small business with under $5,0000 in business expenses you may be able to file a Schedule C-EZ. This is a simplified version of Schedule C and shows only primary business information. In order to file a Schedule C-EZ your business must meet certain requirements:
- You have no deductions for home business use
- Use the cash method of accounting
- Have no inventory or inventory to make goods
- Your business must show a profit for the year
- You don’t depreciate or amortize assets
- You have no employees
So depending on the size of your business, you may be able to use a Schedule C-EZ. If you are just getting started with your business or only operate your business part-time, you probably qualify to file a Schedule C-EZ.
Schedule C Instructions
Schedule C instructions may seem intimidating, but they’re pretty straightforward. Once you list your expenses and income, you’re pretty much done.
Before you get started, gather all of your business documents. You need your profit/loss statement, expense reports, mileage tracking, asset information, and other relevant documents. Once you have all your paperwork in order, start filling out your Schedule C.
First, calculate your business’s income. If you use Sharing Economy apps like Airbnb, Uber, or Upwork, you can view an annual revenue report on your profile. Be sure to include gross earnings as you will deduct any commissions in the expenses portion of the Schedule C.
Enter total income on line 1. If you operate a brick-and-mortar or online store, subtract the cost of goods sold from line 1. Y to find out your business’s gross profit and income. If your business doesn’t involve selling goods, you don’t have to worry about COGS. Your gross income goes on line 7.
The next step is to calculate your deductions. This is where you will list your business expenses. Examples of deductible expenses include:
- Business insurance
- Car expenses
- Mortgage interest
- Office supplies
- Operating costs
- Professional fees
- Repair and maintenance
- Service fees
These are listed on line 8 through line 27 in alphabetical order. Other expenses like bank fees, cell phone, clothing, membership dues, and website costs are listed on line 27. Your total expenses go on line 28. If you are claiming the home office deduction, it goes on line 30. The standard home office deduction allocates $5 per square foot, up to 300 square feet. As a result, the maximum home office deduction is $1,500. Keep in mind, you can only claim this deduction if you have a dedicated space expressly for business use.
From there, subtract line 28 (total deductions) from line 7 (gross income). Then, subtract line 30 if you are claiming it. Your net profit or loss on line 31. This gets reported on your 1040.
If you show a profit on line 31, you will also need to calculate the self-employed tax. Self-employed tax represents your portion and the employer portion of social security and medicare taxes in the amount of 15.3%, half of which can be deducted as a business expense. If you report a loss on line 31, no self-employed tax is due.
How To File As an Independent Contractor
As an independent contractor, you will need to file a schedule C. Having a good accounting system in place can help you stay organized for when it comes time to prepare your taxes. Save all receipts, as expense tracking is important in order to claim deductions. Quickbooks is a great accounting program that allows you to keep track of expenses while on the go. Simply snap a picture of the receipt and you can automatically categorize it. This makes filling out your Schedule C a lot easier.
In addition, you should also consider a mileage tracker if you are planning on claiming the standard mileage deduction. This is a must for Uber and other car-sharing services drivers. Trip Log and Mile IQ are great apps that also integrate nicely with Quickbooks.
It is important to keep track of all of your income as an independent contractor, as it all needs to get reported. Keep in mind, you may or may not receive a 1099-K from sites like Upwork and Airbnb. Most companies like Upwork, Uber, and Airbnb will only issue a 1099-K if you reach 20K in revenue and have over 200 transactions. In the event you do receive a 1099-K, you must report your income accurately as the IRS also receives a copy of the 1099-K. Even if you do not receive a 1099-K, the IRS can still request income information with Tax ID’s as all platforms request this information. This goes for all 1099 income.
Schedule C Example
It may seem a little confusing to fill out a Schedule C, but most of the groundwork is laid out for you. You simply need to follow the Schedule C Instructions and fill in the blanks.
Get Help With Your Schedule C Form
Confused about Schedule C instructions? It’s okay, it can be very intimidating for many taxpayers, especially if you are new to your business. Getting help with your Schedule C is one of the best things you can do for your business. Working with a tax advisor can help you better understand the tax process and make sure your Schedule C is filled out correctly. Accuracy and timeliness are crucial when it comes to preparing and filing your taxes. Contact one of the tax experts at Shared Economy today! To learn more about Schedule C instructions and other tax tips subscribe to our newsletter.