Freelancers, small business owners, and employees with a side gig must file Schedule C to report their income from multiple sources. It covers your income and losses from working as a sole proprietor, whether operating a business or serving as a professional. To be eligible for Schedule C taxes, you need to make profits from your business. Here’s all you need to know about Schedule C, who needs to file it, and how to complete the form.
What is Schedule C?
Schedule C is an IRS tax form used to report self-employment income, which is taxable. It is either attached to form 1040, mailed to the IRS or sent electronically. Note that Schedule C is not the same as Form 1099, although both are needed for specifying self-employment income. You may need form 1099 to fill out Schedule C.
Schedule C is only for sole proprietor and limited liability companies (single-member-operated). As mentioned before, these are run and managed by individuals with a side gig or a freelancing contract. Even if you are working for someone and have a side gig, you are supposed to fill out this form. Here are a few things you should know about this self-employment form.
You have a side gig that you regularly pursue to make a profit.
Schedule F should be used if you report farming as your side gig.
Schedule E is for those with a rental income or those reporting an earning from royalties.
Your net profit, i.e., after subtracting the losses from your gross income, is shown as your income on form 1040. Schedule C is attached to this form and is used to report income and losses from your business. It’s important to keep all the receipts for your business expenses to ensure that you have proof if you are ever audited by the IRS.
You also need your inventory records for the calendar year, balance sheet, profit & loss accounts, and other financial records. Likewise, if you have a separate vehicle for business use, you need to keep vehicle records that shows the miles driven for business purpose.
How to Prepare Schedule C?
You have two options — hire an accountant to get the form filled out correctly or use tax prep software. Because of the complexity of the form, you are going to need the premium version of any tax software. Still, it will cost you much lesser than an accountant’s fee.
Deduct Home Office Expenses
If you have a home space dedicated to your business, you can count it as a business expense. This is applicable to only those who exclusively and regularly use this space for office work. For individual taxpayers, there is a flat $5 per square foot deduction up to $1500. That is for people who want a simplified method. If you have a bigger space and your home business expenses are beyond $1500, you can use the regular method where you calculate the business space and other expenses manually.