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You must report your profit or loss at tax time if you are a sole proprietor or a single-member limited liability corporation (LLC). The Schedule C tax form accompanies IRS Form 1040 for entrepreneurs classified as sole proprietorships or single-member LLCs. Still, the form might apply to other self-employed workers, such as freelancers, contract workers, and those with side gigs.
This Balboa Capital blog article provides more information about IRS Schedule C, including who must file the form, what is included on the form and more. You will find this information helpful, but we recommend you consult an accountant if you have any questions or need more information about Schedule C and other tax-related subjects.
What is a Schedule C tax form?
A Schedule C tax form is an IRS form that reports business income, expenses, and profits or losses for the tax year. The form is completed and submitted with IRS Form 1040, which taxpayers use to file annual income tax returns. No minimum income amount is required for filing a Schedule C; the form must be included with Form 1040 regardless of how much money was made.
Schedule C is simple and straightforward and asks for basic business information, such as the business name and address, accounting method used, Employer Identification Number (EIN), business profits, and itemized business expenses1. The cost of goods sold (COGS) is also required if applicable.
Who needs to file a Schedule C?
As mentioned earlier, Schedule C is a tax form for filing federal income taxes for sole proprietorships or single-member LLCs. A sole proprietorship is a business structure owned and operated by one individual. It is the most straightforward business organization to set up. The owner of a sole proprietorship is responsible for all aspects of the business, including profits and losses.
A single-member LLC is 100% owned by one person; it provides liability protection with fewer formalities and paperwork than a large corporation. When filing income tax returns, a single-member LLC is treated as an entity disregarded as separate from its owner2. However, the single-member LLC owner can complete and file IRS Form 8832 to be classified as a corporation2.
Other self-employed individuals may also be required to complete and submit a Schedule C. For example, if you generate income by performing freelance or contract work or selling something online as a side gig with continuity and regularity, this is classified as self-employment3. An important thing to remember is that a Schedule C is typically required if you generate freelance or side income with your business venture even while working full-time or part-time at a business and are their employee. Finally, Subchapter S corporations and Subchapter C corporations are not required to file the Schedule C form.
File your business income taxes on time.
Reporting business income taxes on time is integral to running a successful business. Late filing of taxes can lead to penalties and interest charges. Filing your taxes on time also helps you avoid any potential audit from the IRS. Furthermore, filing your taxes early can help you get it as soon as possible if you expect a refund.
Filing taxes is daunting for many business owners, and some mistakes can be easily made when completing Schedule C and Form 1040. It is essential to double-check your tax return before submitting it to the IRS, as even minor errors can cause big problems. Knowing the common mistakes to avoid when completing Schedule C and Form 1040 will help ensure your tax return is accurate and complete.
A business accountant can help.
Hiring a business accountant is one of the best ways to make sure your Schedule C and Form 1040 are filled out correctly, and your taxes are filed on time. With their expertise, they can help you maximize deductions, minimize tax liability and stay compliant with all the relevant regulations. Moreover, they can provide valuable advice on managing your finances to optimize your tax payments and save money in the long run.
Balboa Capital, a Division of Ameris Bank, is not affiliated with nor endorses the Internal Revenue Service (IRS). The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.