Schedule C (Profit or Loss from Business)
Schedule C is the IRS form used by sole proprietors and single-member LLCs to report business income and expenses. Net profit is subject to both income tax and self-employment tax.
Exam Tip
Schedule C = sole proprietor. Net profit subject to SE tax. Report ALL income even without 1099. Home office: Form 8829 or simplified ($5/sq ft, max 300 sq ft).
What is Schedule C?
Schedule C (Form 1040) reports income or loss from a business operated as a sole proprietorship or single-member LLC.
Key Schedule C Rules
| Rule | Detail |
|---|---|
| Who files | Sole proprietors, single-member LLCs, gig workers |
| Net profit | Subject to SE tax (Schedule SE) |
| All income reported | Even without Form 1099 |
| Accounting methods | Cash or accrual |
| Filing threshold | $400+ net SE earnings |
Common Schedule C Deductions
| Deduction | Notes |
|---|---|
| Cost of goods sold | Inventory-based businesses |
| Vehicle expenses | Standard mileage or actual costs |
| Home office | Form 8829 or simplified method ($5/sq ft) |
| Business insurance | Liability, malpractice, etc. |
| Depreciation | Section 179, bonus depreciation |
Schedule C vs. Other Business Forms
| Entity | Form | SE Tax on Profits? |
|---|---|---|
| Sole proprietor | Schedule C | Yes (all net profit) |
| Partnership | Form 1065 | Yes (on distributive share) |
| S Corporation | Form 1120-S | Only on wages |
Exam Alert
Schedule C net profit flows to Schedule SE for self-employment tax (15.3%). All income must be reported even without a 1099. Home office deduction available via Form 8829 or simplified method.
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Self-Employment Tax
Self-employment tax is the combined Social Security (12.4%) and Medicare (2.9%) tax that self-employed individuals pay on net earnings from self-employment, totaling 15.3%.
Qualified Business Income Deduction (Section 199A)
The QBI deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities (sole proprietorships, partnerships, S corporations). Phase-outs apply for specified service trades/businesses (SSTBs) above income thresholds.
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