How to Fill Out Schedule C in 2025 (With Example)

Line F: Accounting method—indicate whether you use cash, accrual, or another accounting method for your business.

Step 3: Fill Out Income Information
In this section, you will report all the income your business received during the tax year. This includes sales, services, and any other income you earned.

Line 1: Gross receipts or sales—enter the total amount of income your business received before any expenses are deducted.
Line 2: Returns and allowances—report any returns or allowances made during the tax year.
Line 3: Subtract Line 2 from Line 1 to get your total income.

Step 4: Fill Out Expenses Information
Next, you will report all the expenses your business incurred during the tax year. This includes costs related to operating your business, such as rent, utilities, and supplies.

Line 8: Advertising—report any expenses related to advertising your business.
Line 9: Car and truck expenses—report any expenses related to using your personal vehicle for business purposes.
Line 10: Commissions and fees—report any commissions or fees paid to others for services rendered.
Line 11: Contract labor—report any payments made to independent contractors for services provided.
Line 12: Depreciation and section 179 expense deduction—report any depreciation expenses or section 179 deductions taken.
Line 13: Employee benefit programs—report any expenses related to employee benefit programs.
Line 14: Insurance—report any insurance premiums paid for your business.
Line 15: Interest—report any interest paid on business loans or credit cards.
Line 16: Legal and professional services—report any fees paid to lawyers, accountants, or other professional services.
Line 17: Office expenses—report any expenses related to running your business office.
Line 18: Pension and profit-sharing plans—report any contributions made to retirement plans.
Line 19: Rent or lease—report any expenses related to renting or leasing office space or equipment.
Line 20: Repairs and maintenance—report any expenses related to repairing or maintaining business property.
Line 21: Supplies—report any expenses related to purchasing supplies for your business.
Line 22: Taxes and licenses—report any taxes or licenses paid for your business.
Line 23: Travel, meals, and entertainment—report any expenses related to business travel, meals, or entertainment.
Line 24: Utilities—report any expenses related to utilities for your business.
Line 25: Wages—report any wages paid to employees for their services.
Line 26: Other expenses—report any other expenses not listed above.
Line 27: Total expenses—add up all your expenses to get the total amount.

Step 5: Calculate Your Net Profit or Loss
Subtract your total expenses (Line 27) from your total income (Line 3) to calculate your net profit or loss for the tax year.

Step 6: Enter Your Net Profit or Loss on Your Form 1040
Transfer your net profit or loss from Schedule C to Line 3 of your Form 1040.

Step 7: Keep Records for Future Tax Years
It’s important to keep detailed records of all your income and expenses for your business. This will help you accurately complete Schedule C each year and ensure you are taking advantage of all available deductions.

By following these steps and keeping accurate records, you can easily complete Schedule C for your single-member LLC or sole proprietorship and ensure compliance with IRS regulations. Step 5: Complete Part III (Cost of Goods Sold)

If your business sells products rather than services, you’ll need to complete Part III to calculate your cost of goods sold. This section is crucial for businesses that manufacture or resell products.

Schedule C (Form 1040) Part III

Line 35: Inventory at beginning of year—enter the value of your inventory at the beginning of the tax year. This should match your ending inventory value from the previous year.
Line 36: Purchases less cost of items withdrawn for personal use—list the total cost of all products purchased for resale during the tax year, minus any items that were taken out for personal use.
Line 37: Cost of labor—include the total labor costs directly related to producing the products sold.
Line 38: Materials and supplies—this includes the cost of raw materials or components used to produce the goods for sale.
Line 39: Other costs—include any additional costs directly related to producing the products.
Line 40: Add Lines 35 through 39 to calculate the total cost of goods available for sale.
Line 41: Inventory at end of year—enter the value of your inventory at the end of the tax year.
Line 42: Cost of goods sold—subtract Line 41 from Line 40 to calculate the cost of goods sold.

Step 6: Complete Part IV (Information on Your Vehicle)

If you use a vehicle for your business, you may be able to deduct the costs associated with its use. Fill out Part IV to report this information.

Schedule C (Form 1040) Part IV

You’ll need to provide the following information for each vehicle used in your business:

– Date placed in service
– Total business miles driven during the tax year
– Total commuting miles
– Other miles (such as personal use)
– Total miles driven during the year
– Whether you have evidence to support the business use of the vehicle

Step 7: Complete Part V (Other Expenses)

As mentioned earlier, if you have any expenses that don’t fit into the categories listed in Part II, you’ll need to report them in Part V.

Schedule C (Form 1040) Part V

Line 48: Other expenses—list any additional expenses that don’t fall into the categories listed in Part II.

Step 8: Calculate Your Net Profit or Loss

Once you’ve completed all the sections of Schedule C, you can calculate your net profit or loss for the tax year by subtracting your total expenses from your gross income. This figure will be transferred to Line 3 of Form 1040.

Step 9: Review and Submit

Before submitting your Schedule C, review all the information to ensure accuracy. Any errors or omissions could lead to penalties or audits. Once you’re confident that everything is correct, attach Schedule C to your Form 1040 and submit it to the IRS.

By following these steps and completing Schedule C accurately, you can ensure that you’re reporting your business income and expenses correctly and maximizing your tax deductions. If you’re unsure about any part of the process, consider consulting with a tax professional for guidance. This amount should equal the total expenses on your P&L, with adjustments made for nondeductible expenses, such as 50% of your meal expenses.

Line 30: Expenses for business use of home—you may be eligible for the home office tax deduction, which allows you to deduct expenses if you use a portion of your home exclusively for business.

Line 31: Net profit (or loss)—this is the taxable income from your business. Positive amounts on Line 31 must be reported on Form 1040, Schedule 1 Line 3, and Schedule SE, Line 2. Negative amounts on Line 31 are usually deducted on Form 1040, Line 12, unless not all your investment is at risk or you don’t participate materially. If this applies to you, it is best to speak with an accountant or tax professional.

Line 32: If Line 31 is negative, you need to check one of the following boxes:

32a: All investment is at risk—select this option if you have a business loss and all of the amounts you have invested are at risk, meaning there is no protection against the loss. Most Schedule C business owners have all their investments at risk. Learn more through our guide on at-risk rules for Schedule C businesses.
32b: Some investment is not at risk—select this option if you have a business loss, but not all of your investment in the company is at risk. The most common example is nonrecourse loans used by the business to purchase equipment.

Part V (Other Expenses) Part V provides a breakdown of other expenses. A good rule of thumb is to keep any expenses labeled as “Miscellaneous Expense” to a minimum since there is substantial room for ambiguity. Ambiguous expenses may lead to additional inquiries from the IRS, which taxpayers generally try to avoid. When completing Part V of the form, ensure the total on Line 48 matches Line 27a from Part II.

Step 5: Complete Part III (Cost of Goods Sold) Complete this section if you sell goods or merchandise or use subcontractors to generate income. It reports the direct cost of producing the sales reported on Line 1. Most of these lines are self-explanatory. You can pull the amounts requested directly from your P&L or POS system or make a simple calculation to determine the necessary subtotals. Be sure not to duplicate any expenses that were included in Part II.

Line 33: Inventory method—you don’t need to keep track of inventory if you have less than $25 million in gross receipts. However, tracking inventory might help you to manage your business. If you do track it, select the valuation method that you use; you can value inventory using any method approved by the IRS. However, if you’re using the cash method of accounting, then you’re required to use the cost method to value inventory. The other option is “lower of cost or market,” which means that you’re valuing your inventory at either the historical cost or the current market value, whichever is lower. If you decide to change how you account for inventory, file Form 3115. Refer to IRS Publication 538 for more information on valuation methods.

Line 35: Beginning inventory—indicate the inventory on hand at the beginning of the tax year. This should match your ending inventory from last year. You need to provide an explanation if it doesn’t. Line 36: Purchases—enter the total amount of inventory purchased less any product used for personal reasons. Line 41: Ending inventory—enter the cost of inventory on hand at the end of the year. Line 42: Cost of goods sold—total cost of goods sold on this line must match the cost of goods sold on Part I, Line 4.

Step 6: Complete Part IV (Information on Your Vehicle) Most taxpayers report vehicle information on Page 2 of Form 4562, which is also used to report depreciation. However, if you are claiming vehicle expenses on Line 9 but are not claiming depreciation for any assets, then complete Part IV instead of Form 4562. Your records must include the following information: Date and purpose of the trip Name of the client or supplier, if applicable Total miles driven round trip

Schedule C Due Dates Schedule C, Profit and Loss From a Business, is filed along with your personal income tax return, Form 1040. It’s usually due on April 15 of the following year. If April 15 falls on a weekend or holiday, it’s due on the following business day. For the 2024 tax year, you can receive an automatic six-month extension until Oct. 15, 2025, by filing Form 4868—but an extension of time to file doesn’t extend the time to pay. You must estimate the tax you’ll owe and make a payment when you file Form 4868. Additional Filing Requirements for Schedule C Businesses Your Schedule C is now complete, but don’t forget to do the following: Report your net income from Schedule C on Form 1040, Schedule 1, Line 3. Calculate the Qualified Business Income Deduction (Section 199A deduction) on Form 8995 or Form 8995-A and report it on Form 1040, Line 13. Most Schedule C businesses with positive net income qualify, but see the IRS’s instructions for Form 8995 to learn more. Complete Schedule SE if your net income is over $400 and report your self-employment tax on Form 1040, Line 23.

What Happens After You File Schedule C? Once your Schedule C has been filed with your personal tax return, the IRS will review what was reported and process the filing. This process takes about three weeks but may take longer if the IRS has a backlog or finds conflicting information. If the IRS finds errors or inconsistencies, it will issue a notice and may withhold the refund for the entire return until further clarity is provided. In some cases, the IRS may ask to review the business’ financial records and the underlying support.

Understanding IRS Audits and Tax Record Keeping

When the IRS decides to review your tax return, it initiates an inquiry known as an IRS audit. This audit can be conducted through mail correspondence or in-person meetings, depending on the specifics outlined in the IRS notification you receive.

It’s important to note that any tax return can be randomly selected for an audit. To prepare for this possibility, it’s crucial to maintain supporting documentation for your tax return for a minimum of three years, as recommended by the IRS guidelines on managing tax records. However, records related to activities like rental property, real estate transactions, and sales of stocks or assets should be retained until those assets are no longer in your possession.

Frequently Asked Questions (FAQs)

Can I include more than one Schedule C on my tax return?

Yes, if you own multiple unincorporated businesses, you are required to complete a separate Schedule C for each business.

Are statutory employees required to report on Schedule C?

Statutory employees should report their earnings on Schedule C, Line 1, and can deduct business expenses related to those earnings.

Do gig workers and freelancers report their earnings on Schedule C?

Yes, gig workers and freelancers who receive 1099 forms should use Schedule C to report their income and related expenses to the IRS.

Bottom Line

The most challenging aspect of filing a Schedule C is accurately documenting your income and deductions. To streamline this process, consider utilizing one of the best small business accounting software options available. Once you have a comprehensive Statement of Profit or Loss, completing your Schedule C should become a straightforward task.