What is IRS Schedule C (Form 1040)?
Unlike an employee, when you’re self-employed, you need to track your own taxes.
That’s where Schedule C tax Form 1040 comes in, which is used by any non-partnership self-employed person to track and calculate annual profit and loss for their business.
The form, then, is separated into two sections:
- Earnings (profit)
- And expenses (loss)
Under the earnings section, you’ll calculate things like “gross income” and “gross receipts or sales”.
Under the expenses section, you’ll list out expenses for everything from rent and utilities to advertising spend.
On that note, let’s dive into Schedule C instructions to learn how to fill out your Schedule C right.
Form Schedule C instructions: How to fill out a Schedule C
Schedule C is a pretty logical form, so there aren’t really any highly confusing sections that can cause any confusion.
However, it does ask for a lot of information from the business.
The below 1040 Schedule C instructions will take you step-by-step through each section so you’re crystal clear on how to properly fill it out.
Input General and Earnings Information on the Schedule C
First, before you get to the meat of the form, jot down your basic information.
That includes:
- Your principle business
- Business name
- Business address
- Accounting method
- Along with a few other miscellaneous questions
Section “B” might be a bit confusing, so let’s clarify that. Section B refers to an IRS coding system used to categorize your profession.
You can see the full list of activity codes here to find the one that best matches your business.
Simply locate the code and plug it into this section.
Boom, done.
Also, make sure you have your EIN handy to fill in section D.
If you’re not sure where to find that, you can reference our guide on EIN Lookup: How to Find Your Tax ID Number If You Don’t Know What It Is.
Part I: Income
Now, we get into the main section of the Schedule C form.
First, start by inputting your (or if it’s not you, the contractor’s) income details.
That includes:
- Gross receipts or sales
- Returns and allowances
- Cost of goods sold (CoGS)
- Then run your calculations from there
As noted, first subtract your returns and allowances from your gross receipts and/or sales.
Then, subtract your CoGS from that to get your gross profit.
Then, after adding any other income you might have, add that to your gross profit to get your gross income.
Part II: Expenses
Next, let’s move on to the second half of the equation: expenses.
In this section, you’ll plug in all of you’re business-related expenses from throughout the tax year.
Including:
- Boxes 8-27b: How much you spent in each of these categories.
- Calculate these sections in Box 28
- Then boxes 29-32 all pertain to home office and vehicle expenses:
For more information on how the IRS defines each type of expense to make sure you’re filling these individual sections out correctly, refer to their Schedule C expense definitions on this page.
Part III: Cost of goods sold
If you offer a physical product, i.e. you have inventory, you’ll need to fill this section out. If you don’t, you can skip it.
For this section, you’ll need to input various bits of information related to your product such as how you value your inventory, cost of labor, materials, and the end-of-year value of your inventory.
Part IV: Information on your vehicle
In this section, you’ll record any and all expenses related to business vehicle use.
If you don’t use a vehicle for business use, you can skip this section entirely.
If you do, you’ll need to decide how you’re going to calculating your mileage deduction.
The IRS offers two methods, one of which you’ll need to choose:
- Standard
- Actual expense
The standard method, the deduction is based on the number of miles traveled (strictly for business purposes). This method accounts for depreciation, insurance, and such automatically.
The actual expense method is the “manual” option which requires you to track your exact gas use, insurance payments, etc, and added together.
Part V: Other expenses
This last section is super straightforward: record your other additional expenses that have not been listed thus far.
According to the official IRS website, this includes “all ordinary and necessary business expenses not deducted elsewhere on Schedule C”
List each type of expense along with the expense. Then, enter the total of all other expenses in lines 48 and 27a of the Schedule C form.
Items you cannot list include:
- Business equipment
- Furniture
- Property improvements or replacements
- Personal and family expenses
- Charitable donations
- Finds or penalties for violating any law
For more information on current instructions for filling out Schedule C (Form 1040) see: About Schedule C (Form 1040).
[2024 Update] Important Changes to Schedule C (Form 1040)
Tax year 2023 saw several changes, which came in the form of deduction and credit updates as well as filing changes.
In addition, Schedule C (Form 1040) was also itself updated. So, you’ll need to make sure you have the latest 2023 version of the form for your filing to be valid.
Changes include:
1. Standard mileage rate change
For 2023, the business standard mileage rate has been changed to 65.5 cents per mile.
2. Business meals deduction reduction
This has changed back from the temporary 100% deduction offered to restaurants to the original 50% deduction.
3. Energy efficient commercial buildings deduction change
You’ll now report this on the newly added line 27b on your Schedule C.
4. Bonus depreciation deduction gradual phaseout begins
The applicable deduction limit has been reduced from 100% to 80% in accordance with its planned multi-year phaseout.
5. Commercial clean vehicle credit addition
Detailed in Form 8936, businesses can now qualify for this credit if they purchase a qualified commercial clean vehicle.
6. Form 1040-SS and Schedule C
You can now file your Schedule C with Form 1040-SS (replacing the previous Section IV of Form 1040-SS).
7. Publication 535 has been retired
All references to Publication 535 have been replaced by references to other publications and resources.
That includes:
- Page C-7: Line 12 now references Publication 225, Chapter 7, section 57.
- Page C-8: Line 16a and 16b now references Publication 225, Chapter 4, and Publication 551.
- Page C-17: Part V: Other Expenses, Line 48 now references Publication 334, Chapter 8; Publication 225, Chapter 4; and Section 181
To learn more about changes to the tax year 2023 Schedule C (Form 1040), see the official IRS update page here: Changes to the 2023 Instructions for Schedule C (Form 1040).
Get your taxes done right
Taxes are never fun, but they’re an important part of running any business right.
The last thing you want is to file your taxes wrong and end up dealing with some kind of IRS issue.
So, use these Schedule C instructions, along with the official IRS documentation resources below, to make sure you get your self-employed taxes done right.
